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Afghan Myths

An Interview with Anssi Kullberg

By: Sam Vaknin

Anssi Kristian Kullberg is presently employed as a researcher for the Legal and Country Intelligence Service, Western and Central Asia Desk, at the Finnish Directorate of Immigration. This interview represents his personal views only and not those of his employer. On Black Tuesday, 11th September, he was in Kyrgyzstan, on his way to the notorious Ferghana Valley, in a reconstruction of the late Finnish Marshal C.G.E. Mannerheim's intelligence expedition to Turkistan and China in 1906-1908.

Q: Was the Taliban the creation of Pakistan? Can you tell us about its formation and how was Russia involved in it?

A: The Taliban was not a creation of Pakistan, although Pakistan was among several states that contributed to the genesis and development of this peculiar movement. It is true that the Taliban (which was established only as late as in 1994 as a religious movement) had a significant influx from Pakistani madrassas. But the Taliban is not only an extreme religious movement, but also an ethnic Pashtun one. The Pashtuns are a bit less than half of Afghanistan's population, but in Pakistan there are 16 million resident Pashtuns plus 3 million as refugees. There are more Pashtuns in Pakistan than in Afghanistan
nowadays. The "Pakistanis" involved in Afghanistan are in fact Afghans.

The role of the Pakistani Islamist opposition in the formation and support of the Taliban is widely recorded. But more important are those who made it a military power. This is where Russia enters the game, too. In order to understand the Taliban, we must recall the background situation in Afghanistan ever since the events in 1970s.

The Taliban is not monolithic. Even less so is the Northern Alliance. Neither were the Afghan communists united. This was made evident by the internal power struggles following the ousting of King Zahir Shah in 1973. Daoud was overthrown and killed by communists in 1978. But the communists were divided into the Khalq faction, favored by China, and the Parcham faction, favored by the Soviet Union. In 1978 it was the Khalq faction that took over, but their more moderate leader Nur
Mohammed Taraki was overthrown and killed by the hardliner Khalq communist Hafizullah Amin. In 1979, the Soviet Spetsnaz murdered Amin and replaced him with the Parcham follower Babrak Karmal, who was close to the KGB. Then the Soviet army invaded.

The communist secret service Khad (KhAD), whose leaders were Karmal and Sayid Mohammed Najibullah, was actually an Afghan branch of the KGB. It had been preceded by the communist secret services of Taraki and Amin (AGSA, KAM), but from 1979 onwards this organization of terror was instructed and trained by the KGB. The culture of terror and the horrible persecution of the civil population continued without a pause from the communist takeover up until the overthrowing of Najibullah's regime in 1992 when Massoud liberated Kabul. Western minds seem to implicitly suppose that when the Cold War was over, the communists and the structures they had created just suddenly disappeared. This is a recurrent fatal misperception especially of the Americans.

According to Professor Azmat Hayat Khan of the University of Peshawar, when Ahmad Shah Massoud's mujaheddin liberated Kabul in 1992, and Najibullah gave up power, the communist generals of the army and of Khad agreed to prolong the Afghan civil war in order to discredit President Burhanuddin Rabbani's mujahid government and prevent Afghanistan from stabilizing. The Uzbek communist General Abdurrashid Dostum continued the rebellion against Rabbani and Massoud
in Mazar-i-Sharif, massively backed by the Soviet Union and later by Russia and Uzbekistan. Another rebellious general was Gulbuddin Hekmatyar. Most of the ethnic Pashtun Khalq army generals as well as those of the Khad defected to Hekmatyar's troops. A decisive role was the one played by General Shahnawaz Tanai, the communist commander of
the artillery, who defected to Hekmatyar's side as early as in 1990. Later in 1995, when Hekmatyar's rebellion was losing  strength, Tanai defected to the Taliban. So did many other communist army and Khad officers.

It was Tanai's defection that provided the Taliban with Soviet artillery, Soviet air force, Soviet intelligence and Soviet technical and military knowledge. The American Anthony Arnold argued already then that Tanai's moves were a KGB-inspired provocation. The former KGB General Oleg Kalugin said that it was Moscow who trained most of the terrorists the US is now chasing.

As regards the Taliban, it was nothing special when they took over Kandahar in 1994. Kandahar was a Pashtun city and the strict interpretation of Islam the Taliban propounds is not so much based on the Qur'an but on the narrow-minded social norms of an agrarian Pashtun village. Mullah Omar is often described as having the background of a relatively simple-minded rustic mullah, although he was also politically active in Mohammed Nabi Mohammadi's Harakat-i-Inqilab-i-Islami (Revolutionary Islamic Movement), which later opposed the Taliban.

But apart from Mullah Mohammed Omar and some other leaders who seem to have truly religious backgrounds (and no other education), the Taliban's military and intelligence are dominated by Soviet-trained communists.

Besides Tanai, there is for example the late first Taliban military commander and one of its founders, "Mullah Borjan", whose real name was Turan Abdurrahman, a prominent communist military officer. Many Taliban "mullahs" have no
religious training at all. They are former communist military and security agents who have grown up beards and adopted new names and identities replete with the title "mullah". The Taliban artillery commander was the former Soviet Army's Afghan military intelligence officer Shah Sawar. The Taliban intelligence service chief Mohammed Akbar used to head a department of the Khad. And the Taliban air force commander Mohammed Gilani was a communist general, too. Perhaps because of this immensely influential influx into the Taliban, their interpretation of Islam is quite alien for most of the world's Muslims, but closely resembles the interpretation of Islam that the communists and Russia have traditionally espoused in their anti-Islamic propaganda.

The decisive strengthening of the Taliban took place in 1995-1996, when it was seen as a "stabilizing" force in Afghanistan. This was a great fallacy based on the Taliban's success in Kandahar, which was indeed their "home field". Anywhere else the Taliban did not bring about stability, but quite the opposite. Among those with a rising interest in the Taliban forces, were all the main players: Russia and its satellite regimes in Central Asia, the US, Pakistan, and Saudi Arabia. At the initiative of the Turkmen dictator Saparmurat Niyazov, the Russian energy giant Gazprom, headed by the then Russian Prime Minister Viktor Chernomyrdin, and the US firm Unocal, contracted to lay a pipeline from Turkmenistan to Pakistan, circumventing Iran and crossing the Afghan territory that the Taliban had supposedly "stabilized". For Pakistan, it has been a traditional national interest to secure energy supplies from Central Asia, since it is sandwiched between two vehemently hostile great powers, India and Iran. For Russia, this was seen as a way to control Central Asian energy resources and to extend its influence towards the Indian Ocean. Two Saudi Arabian oil companies were also involved.

During the same years, the Taliban received sizable armed support. It did not come mainly from Pakistan. Financial succor came from Saudi Arabia. But the most decisive increase in the Taliban's strength came from Russia: the defections of the Khalq and Khad generals directly into the Taliban's leadership, vast amounts of Russian weaponry in several mysteriously "captured" stashes, including a very suspicious "hijacking" and escape of a Russian jet loaded with weapons that ended up in the hands of the Taliban's ex-communist leaders. With these new weapons, the Taliban marched on Herat in 1995, and finally managed to capture Kabul in 1996. Najibullah was hanged, but Najibullah's hanging by his former Taliban-turned protégés seems to have camouflaged the actual developments in the Afghan power struggle.

Russia had an interest to cut the strong ties between Massoud's mujaheddin and the Tajik opposition that Russia had crushed since it attacked Tajikistan in 1992 and backed the communists into power there. The old provocateur Hekmatyar was by then defeated and had finally given up his fight - after losing his men and arms by Tanai's defection to the Taliban - and accepted a seat in the government in compensation. Since Hekmatyar was finished, a new Pashtun force was needed in those years. Taliban was a rising force that various external players tried to exploit by infiltration, support and manipulation.

When the Cold War was declared over by the West, it did not stop elsewhere. After 1989 the West really lost interest in Afghanistan and until some months before his death Massoud was trying to appeal to it in vain. The West was uninterested, but others were. Pakistan, of course, was interested in the goings on in its unstable neighbor. Saudi Arabia was financing and supporting dangerous Sunni fundamentalist groups, and later the Taliban. The Saudis also provided them with their own Saudi fanatics that had become troublesome at home. Iran was supporting its own agents within Afghan Shia groups. And the Soviet Union and later Russia continued to provide massive armed support to the last communist dictator of Afghanistan, Najibullah, and later to the notorious General Dostum.

The Russian principle was "divide and rule", with the basic idea of keeping the West out and assuring that the region would not strengthen so that the Soviet empire could return once it has regained its military might. Because of this stratagem, Russia has supported the Tajiks of the Northern Alliance through Tajikistan - only sufficiently to form a buffer zone against the Taliban, but without being able to gain substantial victories or to intervene in Tajikistan. Moreover, Russia has been arming and supporting the Uzbeks under the command of Dostum and General Malik who later defected to the Taliban's side. This support has been directed through Uzbekistan and still continues - ironically, with the West's full blessing. Less known has been the Russian support directed through Turkmenistan to the Taliban, and to the Islamic Movement of Uzbekistan that is said to threaten Karimov's rule there.

Q: What was and is the role of the CIA in all this? Was Pakistan's ISI the CIA's long arm? Was bin Laden a CIA agent?

A: A chronic feature of American intelligence policy seems to be historical amnesia and inability to see the complex nature of conflicts and local relationships. This was also manifested during the Soviet occupation of Afghanistan. British intelligence and part of the Pakistani intelligence community clashed with the US already during the Cold War period, because they wanted to support Ahmad Shah Massoud, the "Lion of Panjshir". It was Massoud and his mujaheddin who finally, after getting Stingers from the British, managed to make the war too expensive for the Soviets, forcing them to retreat in 1989.

Meanwhile, the CIA was incompetent enough to be dependent on the Pakistani intelligence services that, especially in Zia ul-Haq's period, favored Gulbuddin Hekmatyar, a pompous figure who claimed to have extensive contacts throughout the Islamic world. He indeed had some contacts, including with Osama bin Laden, but he was considered to be a KGB provocateur by Massoud and many others, and was never of any help in the Afghan independence struggle.

Instead of fighting the Soviet occupants, Hekmatyar preferred to fight other Afghans, and to conspire with suspicious Arab circles imported by his contact bin Laden to Peshawar. The Stingers that the CIA had provided to Hekmatyar, were not used to liberate Afghanistan. Instead, Hekmatyar sold them to Iran, and they were later used against the Americans in a well-known incident.

When the Soviet troops moved out, Hekmatyar pursued a bloody rebellion against the legal Afghan government, devastating the country along with another rebel general, Dostum. (Though they were not aligned.) In 1993, Hekmatyar supported the KGB general and spymaster Haidar Aliyev's coup in Azerbaijan and, in 1994, Hekmatyar was involved in supporting pro-Russian Lezghin terrorists in the Caucasus. Hekmatyar is still active. He lives in Teheran, and has recently finally revealed his true colors by siding with the Taliban.

As far as I know, Osama bin Laden was never a CIA agent. However, there are relatively plausible claims that he was close to Saudi intelligence, especially to the recently fired intelligence chief Prince Turki bin Faizal, until they broke up. Osama first appeared in the Afghan War theater either in 1979, or, at the latest in 1984. But at the beginning he was first and foremost a businessman. He served the interests of those who wished to construct roads accessible for tanks to cross through Afghanistan to the Indian Ocean. This might also explain his characteristic opportunism - quite atypical for a self-proclaimed warrior of faith.

International jihadists surely want to portray him as a religious fighter or Muslim hero, but this is not the true picture, but, mostly, a myth created by the Western media. This is where Arab, Pakistani and Indonesian teenagers learn that Osama is a fighter in a universal struggle of Islam against its oppressors.

But bin Laden never fought the Soviets to liberate Afghanistan. For most of this period, he was not even in Afghanistan. He was managing an office in Peshawar, and the only credible claim about him being in a battle has been made by the former CIA official Milton Bearden concerning a minor skirmish that took place in spring 1987.

Bin Laden's first significant contact in Peshawar was the Palestinian Professor Abdullah Azzam, whom bin Laden has later described as his mentor. Azzam was an Arab idealist, who wanted to concentrate on the liberation of Afghanistan, and who wanted to support Massoud, whom he correctly regarded as being the right person to uphold. Bin Laden disagreed. He wanted to support the disloyal Islamist fanatic Hekmatyar. As a result, Azzam and his son were blown up in a car bomb in 1989, and consequently, bin Laden took over his organization and transformed it into Al-Qaida (the Base). Already before these events, he started to transform the agency by flooding it with his Arab contacts from the Middle East. These Arabs were not interested in liberating Afghanistan as much as in hiding from the law enforcement agencies of their own countries, most of all Egypt's.

When Russia attacked Tajikistan, bin Laden and his folks were by no means interested in liberating Tajikistan from a new communist yoke. Instead, bin Laden left Afghanistan and dispersed his terrorist network, directing it to act against the West. It is bizarre that a man claiming to be an Islamic fundamentalist supported the invasion by the Arab socialist (and thereby
atheist) Iraq against Kuwait and Saudi Arabia, both with conservative Islamic regimes.

Al-Qaida's supported all causes and activities against the West: the US, Turkey, Israel, and any pro-Western Muslim regime like Pakistan. Robbers on the island of Jolo in the Philippines qualified for Al-Qaida's support although they hardly knew anything about the Qur'an. They were immediately they were portrayed as "Islamic fighters". Even the strictly atheist anti-Turkish terrorist organization PKK has been welcomed. At the same time they definitely have not supported Muslims advocating Turkish-modeled moderate independence, like the Chechens, the original Tajik opposition or the Azeri government under President Abulfaz Elchibey.

As concerning Pakistan's intelligence service, the ISI, I think it would be gross underestimation of a potential regional great power and its British colonial traditions of military and intelligence to describe it just as an arm of the CIA or of the Islamists. These are widespread myths. The ISI is neither the hero nor the villain of this story. I think the ISI is interested simply in the national interest of Pakistan, which consists of four main elements: security against the hostile strong neighbors India and Iran, security against the instability and uncontrolled forces ravaging Afghanistan and infiltrating Pakistan through the large Pashtun population, the conflict over Kashmir, and Pakistan's own international status.

Afghanistan is an historical buffer zone in the ancient Great Game of Central Eurasia. It is the gateway through which Pakistan's enemies can attack or destabilize it, and it is equally the buffer that stops these enemies. Pakistan's is interested in regional stability while its enemies seek to use any instability against it. There is a great divide within Pakistan between Pakistani nationalists and internationalist Islamists. Pakistan is relatively democratic compared with its neighbors - even including India, considering its treatment of minorities and the Kashmir issue. It, thus, has the problems of a democracy. Pakistan has quite free and critical press, local administration and intellectual opposition, the Islamists included. It is not, and has never been, an Islamist dictatorship like Saudi Arabia.

Q: Can you chart the relationship between the ISI and the Taliban?

A: The policy of the ISI was strongly correlated with developments in Pakistan's leadership. The main divide concerning the ISI's Afghanistan policies did not concern  religious issues as it did the ethnic question related to the political and military aspirations of the Pashtun people in both Pakistan and Afghanistan. Actually one of the greatest dangers to Pakistan's national existence would be the emergence of the idea of Greater Pashtunistan, splitting Pakistan in two.

This was an idea favored and agitated by the pro-Soviet Pashtuns - many of whom are now influential in the Taliban. The Pakistani researcher Musa Khan Jalalzai noticed this and described these people as "enemies of Pakistani interests".

India and Iran would like to split Pakistan and destroy it, and Russian geopolitics is still based on a "final thrust to the South". Iran and India equally fear that Baluchistan, Kashmir and Punjab would finally be united under Pakistani rule. Incorporating Pashtunistan, Pakistan has the potential to become a South Asian superpower with plausible expansionist chances. Yet this has never really been an aspiration of Pakistan. Like Turkey under Ataturk, Pakistan under such leaders
as Ayub Khan and now Pervez Musharraf has been introverted in its nationalism and based on constitutional and national ideas similar to those of present day Turkey and France.

During the military dictatorship of Zia ul-Haq the policy turned more Islamist, and during this period the ISI strongly supported Hekmatyar. Hekmatyar proved disloyal and finally defected to Iran. During Benazir Bhutto's government, support has shifted to the Taliban. This was decided by the Interior Minister Nasirullah Babar. It is history's irony that the first female prime minister of Pakistan helped to strengthen the misogynist Taliban regime. The ISI started to get disillusioned and
disappointed with the Taliban during the thoroughly corrupt "democracy" continued under Nawaz Sharif. There have been rumors that the ISI wished to influence the Taliban and to empower "a third force" among the more moderate Taliban leaders to take over it. It is in connection with this that Shahnawaz Tanai actually defected to Pakistan, and the ISI was
dealing with the former communists who were so powerful within the Taliban.

Luckily for Western interests, General Pervez Musharraf took over. This takeover was the best event in Pakistani history as far as the West is concerned, although it was sadly ignored in the West during the Clinton administration. Musharraf was portrayed as a military dictator and a supporter of the causes of the Taliban and of an alliance with China (all sins of his predecessors). Musharraf is profoundly pro-Western, secular in mind and pragmatic in foreign policy. He in fact tried to
form constructive relationships with all the neighboring countries (Iran, India and Afghanistan). His peace initiatives in Kashmir were stalled by Indian arrogance, and the West turned a cold shoulder to its old ally, which has been a source of great bitterness in Pakistan, especially since the West has been very inconsistent in choosing when to support Pakistan and when not to. But during the Musharraf reign, human rights and the position of women in Pakistan have improved considerably.

Constructive relations with whomever rules Afghanistan have been Realpolitik for Pakistan. Although Musharraf, immediately after seizing power, started to undermine the support for the Taliban, he could not remove the recognition given to the Taliban government, as there was no other Afghan government - the Rabbani government having been ousted and categorically hostile to Pakistan, partly for legitimate reasons. Pakistan has been trying ever since to construct new anti-Taliban alliances, as well as trying to find intra-Taliban frictions to exploit. But the West should be very careful and measured in its pressure on Pakistan. The Taliban is really not under Pakistan's thumb, and never was.

I think the ISI first saw the Taliban as a potential instrument. Then it saw it as a threat that had to be infiltrated and controlled. Then they saw it as a burden. Surely the ISI wished to control and contain the Taliban, but their success has been rather doubtful (as has been others'). Many analysts have paid attention to the fact that Afghan as well as non-Afghan adventurers like bin Laden, have always been very talented at exploiting the surrounding states as well as both superpowers.

Another distorted myth is propagated by India. It is that the Kashmiri secessionism is terrorism and a Pakistani creation. This is very far from reality. More than 80% of Kashmiris would probably prefer independence, but at the same time they reject the Islamist model. There are several small but media-visible Islamist groups operating in Kashmir, or at least proclaiming the Kashmiri cause. But these people are not really interested in Kashmiri independence. They are interested in jihad. Such
Islamists appear wherever there is a war (during Bosnia's struggle for independence and in the Albanian civil war, in Chechnya, Kashmir and so on). Their "help" is usually just an added burden to the ones they purport to help, since they are seldom fighting for any liberation. These "professional" jihadists also seem to be more common in internet cafes and among Arab diasporas in the West than in places where Muslim nations face real oppression.

We must remember that Musharraf cannot possibly surrender to India in the Kashmir dispute. This would not only be political suicide, but it would not end the Kashmir conflict - quite the contrary. It would mean importing the Kashmiri conflict into Pakistan, and against Pakistan. What happened in Afghanistan, with millions of refugees flooding to Pakistan, should not happen with Kashmir. This would be an outright catastrophe for both Pakistan and India, let alone the Kashmiri people. Therefore it is the most crucial interest of the West to prevent India from escalating the Kashmir conflict and turning Kashmir into another weapon against Pakistan's stability.

Q: The "Arab" fighters in Afghanistan - are they a state with a state, or the long arm for covert operations (e.g., the assassination of Massoud) for the Taliban? Who is the dog and who is the tail?

A: The dog and tail can get very entangled here. Everybody is exploiting everybody, and finally all organizations and states are tools which consist of individuals and used by them. The Arabs in Afghanistan are indeed Arabs. There are also lots of "Pakistani" volunteers on the Taliban side, but these are mainly Pashtuns, that is, Afghans.

The mentioning of Chechens, Uighurs and so on is more designed to satisfy the propaganda purposes of Russia and China. There are less than one million Chechens and they have a very harsh war going on in Chechnya. Chechens who choose to go to Afghanistan instead must be quite unpatriotic.

The Arabs form the hard core of Al-Qaida. They are the Egyptian, Syrian, Iraqi etc. professional revolutionaries and terrorists who have gathered around the figurehead of Osama bin Laden. Many of these share the same old background in Marxist-inspired revolutionary movements in the Middle East. Ideology and facade have changed when green replaced red, but their methods as well as foreign contacts have mainly remained the same. This is why they are much more interested in attacking the West and pro-Western Muslim regimes than in supporting any true national liberation movements. Even if they try to infiltrate and influence conflict outcomes in the Balkans, the Caucasus, East Turkistan and Kashmir, they are set against the nationalist and secular - and usually pro-Western - policies of the legitimate leadership of these secessionist movements. So the people whom Al-Qaida may support and try to infiltrate are usually exiled or otherwise opposition forces acting in fact against the idea of independence. This has been the case in Chechnya, Dagestan, Bosnia, Kashmir and so on.

And this has been the case in Afghanistan as well. Osama bin Laden and his Arabs never contributed to the actual Afghan national liberation struggle. Instead they acted against it by infiltrating Afghan circles and turning them against each other. Their jihad is not intended to defend the Muslims against infidel oppressors, but to cause chaos and destruction, in which they apparently hope to overthrow Muslim regimes and replace them with the utopia of Salafi rule. It is not hard to see how this set of mind was inherited from the communist utopian terrorist movements that preceded the present Islamist ones. They had the same structures, the same cadres, the same leaders, the same sponsors and the same methods.

The Arabs in Afghanistan have feathered their nests, though. Osama bin Laden and his closest associates have all married daughters of Afghan elders - from different factions and tribes - and their sons and daughters have, in turn, married the off-spring of eminent Afghan leaders. This is how they secured their foothold in Afghan social networks - something neither the West nor Pakistan succeeded to do. When issues are reduced to family relationships, it is not to be expected that the Afghans would hand over the Arabs to the West or to Pakistan. Al-Qaida is not only fortifying itself physically, but also socially. At the same time their cells and countless collaborating agencies - some of whom are clearly non-Islamist, and some of which are government agencies of certain hostile states - are hoping to escalate this "war against terrorism" and to exploit it for their own purposes.

Q: Do you believe that the USA had long standing designs to conquer Afghanistan and used the September 11 atrocities as a pretext?

A: I would rather say that somebody else had long standing designs for a major conflict in which it was necessary to get the US involved. Those who wiped out Mr. Massoud a couple of days before the terror strikes in the US probably knew that the terrorists will be hunted in Afghanistan.

It is clear that the US, among many others, has long desired to overthrow the Taliban, and I see nothing wrong with it. Afghanistan was the easiest target, because the Taliban was not internationally recognized (except by three countries at the beginning of the war), and because there was nobody strong enough to really side with the Taliban. There was no special need to demonize them, as they seemed to have done a good job demonizing themselves. The West was more concerned with the blowing up a couple of Buddha statues than with the thousands of victims of the Taliban's tyranny and of the civil war that continued to rage in Afghanistan all this time totally ignored by the Western media until the US got involved again. The US can, of course, be blamed for hypocrisy, as always, but the truth is that getting the US involved has greatly helped those in Afghanistan who had hoped for decades to overthrow the Taliban.

It is also quite surprising that even Musharraf's Pakistan seems to have actually benefited from the present course of affairs, since terrorism has given Musharraf the pretext of openly siding with the West, and abandoning all remnants of Pakistan's tolerance of the Taliban.

Still I would be inclined against any conspiratorial depiction of the recent events that would blame the US for all that happened. The US had to react, and Afghanistan was a logical target. In this sense, the US did what the terrorists wanted. But they did so in a much more moderate way, and after much longer preparations than their enemies had probably hoped for. One reason is that in the Bush administration there seems to be significantly more foreign political expertise than in the Clinton administration that hastily bombed a couple of targets, including a factory in Sudan, but always failed to respond to the real challenge.

In the long run, the threat posed by terrorism will not be defeated by military operations and not in Afghanistan. What can be done there is just the removal of the Taliban regime and helping to construct a stable and recognized Afghan government. It is important to give security guarantees to Pakistan and to support the development that is transforming Pakistan into a strong and relatively stable pro-Western Muslim country that can play a similar role in Central and Southern Asia as Turkey does in the West and Middle East. At best, this could even encourage a Musharraf to rise in Iran, which would yield ultimate benefits to Western interests in Asia.

But then, terrorism must be fought by other means.

This means that Western intelligence must rise to the level of the Cold War to face challenges by terrorist organizations as well as by colluding governments. The West must also resist Huntington's vision coming true , since this is exactly what the terrorists want: a clash of civilizations. And we must keep in mind that there are also many others who would like to see a worldwide conflagration between the West and Islam.

Q: What is the geostrategic and geopolitical importance of Afghanistan?

A: Afghanistan is not so significant in itself, if we only consider economic interests. Of more importance are some countries situated near Afghanistan, especially those in Central Asia and Azerbaijan. Afghanistan is also a traditional buffer zone, since its landscape is hard to penetrate for tanks and modern armies. It has prevented the expansion of the Eurasian Heartland Empire towards Eurasia's southern rim lands for centuries. It has protected the areas included in Pakistan and India today, but on the other hand, turning Afghanistan into a politically or militarily active area was used to destabilize Pakistan, or Central Asia, in order to alter the status quo, whatever it was.

Regarding oil, Afghanistan again forms a bridge or a barrier. As long as Iran is regarded as a hostile country by the US, Afghanistan forms an oil transport route from Central Asia to Pakistan. As long as there is war in Afghanistan, it remains a barrier preventing the countries of the Caspian Sea from benefiting from their oil. Wars in the Caucasus have exactly the same outcome. While this is the case, only Russia and perhaps China will have access to and hegemony over the energy resources in the vast Eurasian heart-land.

I think this is the main geopolitical importance of both Afghanistan and the Caucasus. It is the question of Russia monopolizing the geopolitical heartland, first and foremost. Considering the colossal weight of geopolitics and geopolitical thought in present Russian security thinking, these implications cannot be overestimated.

Q: Can Turkey be drawn into the conflict and, if yes, what effect will this have on Iran, Central Asia, and NATO?

A: It seems Turkey has been drawn into it already. Or rather, Turkey has volunteered to be drawn into it. Iran and Russia, of course, share a very hostile attitude towards any expansion of Turkish influence in Central Asia and the Caucasus. Turkey and Pakistan, on the other hand, may finally find each other after a long period of mutual hostility. They both share a similar geopolitical importance as potential guardians of the West. They are among the most important rim land nations, to borrow a phrase from classical geopolitics. This means that they are also the most important barriers on the way of a heartland empire to aspire to sole Eurasian hegemony.

Turkey has sought to advocate its interests in Central Asia, where most of the Turkistani nations are ethnically Turkic (that is, Uzbeks, Turkmens, Kazakhs, Kyrgyz and Uighurs, while Tajiks are Persian). At the beginning of the 1990's Turkey tried to play the ethnic and linguistic cards and the Central Asians were quite enthusiastic to embrace "the Turkish model" - that is, a Western orientation and secular state. But the Central Asian states are still dominated by communist nomenclatures
with strong ties with Moscow.

Turkey's economic problems and generally overly cautious foreign policy have greatly undermined its capacity to advocate its own and Western interests in Central Asia. Moreover, the Central Asian dictators have interpreted the "Turkish model" in most peculiar ways, being often closer to the Chinese model than the Turkish one.

I think Turkey is again trying to prove how pro-Western it is and how loyal it is to NATO. The West has usually been much less loyal to Turkey. When it comes to NATO's influence in Central Eurasia, once Afghanistan is pacified and US presence probably strengthened through Uzbekistan (though it is one of the notoriously disloyal allies of any Western interest, much resembling the role played by Saudi Arabia), it is time to come to Georgia's rescue again. The West had better not be too late in coming to the aid of Georgia and Azerbaijan, which are both under serious Russian pressure right now. If the Baku-Ceyhan pipeline can be completed, then it could be time for a major reform in Iran as well.

The Afghan Trip

By: Sam Vaknin

I. The Poppy Fields

Conspiracy theorists in the Balkan have long speculated on the true nature of the Albanian uprising in Macedonia. According to them, Afghanistan was about to flood Europe with cheap opium through the traditional Balkan routes. The KLA - denounced by the State Department as late as 1998 as a drug trafficking organization - was, in the current insurrection, in its new guise as the NLA, simply establishing a lawless beachhead in Macedonia, went the rumours. The Taliban were known to stock c. 3000 tonnes of raw opium. The Afghanis - Arab fighters against the Soviet occupation of Afghanistan - another 2000 tonnes (their fee for providing military and security services to the Taliban). Even at the current, depressed, prices, this would fetch well over 2 billion US dollars in next door Pakistan. It also represents 5 years of total European consumption and a (current) street level value in excess of 100 billion US dollars. The Taliban intends to offload this quantity in the next few months and to convert it to weapons. Destabilizing the societies of the West is another welcome side effect.

It is ironic that the Taliban collaboration with the United Nations Office for Drug Control and Crime Prevention (UNODCCP) culminated this year in the virtual eradication of all opium poppies in Afghanistan. Only 18 months ago, Afghan opium production (c. 4600 tonnes a year) accounted for 70% of world consumption (in the form of heroin). The shift (partly forced on the Taliban by an unusual climate) from poppies to cereals (that started in 1997) was thus completed successfully.

II. Agriculture

Afghanistan is not a monolithic entity. It is a mountainous and desert territory (c. 251,000 sq. miles in size, less than 10% of it cultivated). Administratively and politically, it is reminiscent of Somalia. The Taliban government - now recognized only by Pakistan - rules the majority of the country as a series of tribal fiefdoms. The country - ruined by a decade of warfare between majority Pushtuns and minority Tajiks and Uzbeks in the north - lacks all institutions, or infrastructure. In an economy of subsistence agriculture and trading, millions (up to one third of a population of 27 million) have been internally displaced or rendered refugees. One third of all farms have been vacated. Close to 70% of all villages are demolished. Unemployment - in a mostly unskilled workforce of 11 million - may well exceed 50%. Poverty is rampant, food scarce, population growth unsustainable. The traditional social safety net - the family - has unraveled, leading to widespread and recurrent famine and malnutrition. The mainstays of grazing and cattle herding have been hampered by mines and deforestation.

The Taliban regime has been good to the economy. It restored the semblance of law and order. Agricultural production recovered to pre-Soviet invasion (1978) levels. Friendly Pakistan provided 80% of the shortfall in grain (international aid agencies provided the rest). The number of heads of livestock - the only form of savings in devastated Afghanistan - increased. Many refugees came back.

Urban workers - mostly rural labourers displaced by war - fared worse, though. As industries and services vanished and army recruitment stabilized with the Taliban's victories, salaries decreased by up to 40% while inflation picked up (to an annual average of 20-25%, as reflected in the devaluation of the currency and in the price of bread). More than 50% of the average $1 a day wage of the casual, unskilled, worker, are spent on bread alone!

But this discrepancy between a recovering agricultural sector and the dilapidated and depleted cities led to reverse migration back to the villages. In the long term it was a healthy trend.

Paradoxically, the collapse of the central state led to the emergence of a thriving and vibrant private sector engaged in both legal and criminal activities. Foreign exchange dealing is conducted in thousands of small, privately owned, exchange offices. Rich Afghani traders have invested heavily in small scale and home industries (mainly in textiles and agri-business).

III. Trade

In some respects, Afghanistan is an extension of Pakistan economically and, until recently, ideologically. Food prices in Afghanistan, for instance - the only reliable indicator of inflation - closely follow Pakistan's. The Afghan currency (there are two - one issued by the Taliban and another issued by the deposed government in Faizabad) is closely linked to Pakistan's currency, though unofficially so. The regions closest to Pakistan (Herat, Jalalabad, Kandahar) - where cross border trading, drug trafficking, weapons smuggling, illegal immigration (to Western Europe), and white slavery are brisk - are far more prosperous than the northern, war-torn, ones (Badakhshan, Bamyan). The Taliban uses economic sanctions in its on-going war against the Northern Alliance. In 1998-9, it has blockaded the populous provinces of Parwan and Kapisa.

Another increasingly important trade partner is Turkmenistan. It supplies Afghanistan with petrol, diesel, LNG, and jet fuel (thus reducing Afghani dependence on hostile Iranian supplies). Uzbekistan and Tajikistan, its two other neighbours, are considered by the Taliban to be enemies. This enmity results in much higher costs of transportation which price out many Afghan products.

With Pakistan, Afghanistan has an agreement (the Afghan Transit Trade) which provides the latter with access to the sea. Afghanistan imports consumer goods and durables through this duty free corridor (and promptly re-exports them illegally to Pakistan). Pakistani authorities periodically react by unilaterally dropping duty free items off the ATT list. The Afghans proceed to import the banned items (many of them manufactured in Pakistan's archrival, India) via the Gulf states, Russia, Ukraine (another important drug route) and into Pakistan.

IV. The Future

The current conflict can be a blessing in disguise. Western aid and investment can help resuscitate the Soviet era mining (Copper, Zinc) operations and finally tap Afghanistan's vast reserves of oil and natural gas. With a GDP per capita of less than $800, there is room for massive growth. Yet, such bright prospects are dimmed by inter-ethnic rivalry, a moribund social system, decades of war and natural disaster (such as the draught in 1998-9), and intense meddling and manipulation by near and far. One thing is certain: opium production is likely to increase dramatically. And Western users will be treated to ever cheaper heroin and Hasish.

 

Pakistan's Nice Little War

By: Sam Vaknin

Causing trouble is sometimes a profitable business. The Taliban is, to a large extent, the creation of Pakistan. Yet, it stands to benefit greatly, economically as well as politically, from the destruction of the Taliban at the hands of the anti-terror coalition. In the process, its autonomous and contumacious intelligence services keep supplying the Taliban with food and weapons. The government denies either knowledge or responsibility but the border remains porous, to the economic benefit of many.

The self-appointed President of Pakistan, General Pervez Musharraf, said a few months ago that Pakistan was "on the road to economic recovery". This was incompatible with a simultaneous official reduction in the economic growth target of country (from 4.5% to 3.8%). But, in May, Pakistan's debt was being rescheduled with the blessings of the IMF (which contributed 200 million US dollars to the effort) and the World Bank (in the process of approving $700 million in soft loans). Yet another Paris Club rescheduling seemed imminent.

Two months later, talk was in the air about a multinationally-managed natural (non-liquefied) gas pipeline from Iran to India, through Pakistani territory. "The Economist" (July 14, 2001) estimated that "... the pipeline might yield Pakistan anything from $250m to $600m a year in transit fees".

There was cause for this optimism.

To their credit, Musharraf's skilled economic team of technocrats went where their predecessors feared to tread. They imposed a highly unpopular and much protested against sales tax on all retail trade. Musharraf threatened to imprison tax evaders and debt defaulters and backed his threat with (constitutionally dubious) arrests. The immediate result was that tax collection (by the outlandishly corrupt tax authorities) increased by c. $800 million in the 12 months to June 30, 2001 (the end of the Pakistani fiscal year) - though mostly from import inhibiting exorbitant customs and indirect taxes.

Funds, doled out by corrupt bank managers to defunct enterprises and used to roll over bad loans - were suddenly recalled. The hitherto symbolic prices of oft-wasted and oft-stolen oil, gas, and electricity were gradually increased and subsidies to state-owned utilities (such as cotton mills) decreased. This brought about a belated wave of painful restructuring and Pakistan's shambolic and patronage-based industries almost evaporated. Serious privatization is on the cards. The phone company is up for grabs and all privatization proceeds (optimists put them at $3 billion, realists at a billion dollars less) are earmarked to pay off foreign debt. The budget deficit stabilized around 5% of GDP (compared to 6.5% the year before), aided by a cut in defence spending (which reached 6% in 1997 but deteriorated ever since compared to India, whose defence spending increased by 40% in the same period). Despite growing energy costs, inflation was tamed, down to 4% (2000) from 8% (1999).

Yet, tax revenues are still less than 17% of GDP and less than 1.5% of all taxpayers bother to file tax returns of any kind. In other words, these largely cosmetic measures failed to tackle the systemic failure that passes for Pakistan's economy. Reform - both economic and political - was still sluggish and half-hearted, Pakistan's current account deficits ballooned (to $3 billion in 1999), the geopolitical neighbourhood roughened, and the world economy dived. Pakistan's imminent economic collapse looked inevitable.

Then came September 11. Weeks later, US sanctions imposed on Pakistan since 1990 and 1998 (following its nuclear tests) were waived by President Bush and he rescheduled $400 million in Pakistani debt to various agencies of the US administration. The predicted wave - which has yet to materialize - of 1.5 million Afghan refugees - was worth to Pakistan $600 million in US aid alone ($150 million of which were already disbursed).

The IMF - ostensibly an independent organization bent on economic reform and impervious to geopolitical concerns - swiftly switched from tentative approval (the second tranche of the almost twentieth IMF loan was approved in August, before the attacks) to unmitigated praise regarding Pakistan's economic (mis)management. The $200 million it so reluctantly promised in May and the $1 billion a year (for a period of 2-3 years) Pakistan was hoping to secure in August gleefully mushroomed to $2.5-3.5 billion in October. The rupee shot up in response. Debt forgiveness is discussed with Pakistan accorded a status of HIPC - Highly Indebted Poor Country - which it, otherwise, doesn't deserve, on pure macroeconomic grounds.

Consider this:

On September 10, each citizen of Pakistan, man, woman, and infant, owed only $300 in external government debt. This represented a mere 60% of GDP per capita (or 53% of GDP) in 1997. On that same year, Pakistan's GDP per capita was 25% higher than India's, average GDP growth in the two decades to 1997 was 5.7% p.a. (India - 5.8%), and it was rated 3.4 (India - 3.7) on the economic freedom index. After a dip in 1999 (3.1%) - growth picked up again to 4.5% , fuelled by bumper cotton and wheat crops in 2000. Pakistani citizens had as many durables as Indians. Definitely not an HIPC, Pakistan is an emerging middle-class east Asian country.

Admittedly, though, the picture is not entirely rosy.

Pakistan's external debt - mainly used to finance consumption and to plug holes in its uninterrupted string of unsustainable government budgets - was double India's (as proportion of GDP) and it had only 4% of India's foreign exchange reserves (c. $1 billion, enough for three weeks of imports). Per capita, it had 30% as much as India's foreign exchange reserves. As default loomed, growth collapse to 2.6% in 1995-2000, barely enough to sustain the increase in population. The usual IMF prescription (austerity) served only to depress consumption and deter FDI. Foreign direct investment was identical in both 2000 and 1988 - a meager $180 million (less than FDI in Kosovo's neighbour, Macedonia, with its 2 million citizens to Pakistan's 140 million).

Luckily for it, Pakistan has a (largely underground) vibrant though impromptu private sector which fills the vacuum left by the nefarious public sector. Many ostensibly public goods - from bus services to schools, from clinics to policing, from public toilettes to farming - are affordably provided by domestic, small time, entrepreneurs often aided by NGO's.

Yet, an economy is more than the sum of its statistics. A failed, feeble, passive-aggressive central government is largely supplanted in Pakistan by criminally-tainted regional political networks of patronage, venality, nepotism, and cronyism. More than 50% of all food aid may be squandered, "taxed" by local functionaries. Teachers pay schoolmasters a portion of salaries not to teach. Maintenance workers, sanitary squads, telephone installers, medical doctors, surgeons, professors in universities, policemen - all demand, and receive, bribes to fulfill their duties, or, more often, to turn a blind eye. Pakistan habitually trails the The UNDP's Human Development Index (which takes into account the quality of life - things like life expectancy, literacy, and gender and income inequalities). This dismal showing is after Pakistan made strides in literacy, life expectancy and decreasing infant mortality.

Since independence in 1947, Pakistan's GNP has quadrupled and income per capita has doubled. But it still spends more on defence than on health and education combined and less than most developing countries. The botched experiments with "Islamic economy" did not help. Pakistan, like certain belles, still survives on the kindness of others - remittances by expatriates and other external capital flows account for 10% of GDP and 50% of domestic investment. And the main export of this country is its skilled manpower - despite its surprisingly diverse economy. Less than one third of Pakistanis bother to vote - a clear and sad statement by abstention.

Iran - Between Reform and Mayhem

By: Sam Vaknin

 

Iran's porous border with Afghanistan is almost 600 miles (1000 km) long. No one knows for sure how many Afghani refugees crossed it in the last 20 years, but well over 2 million would be a fair estimate. Now that Iran transformed all newcomers into illegal aliens, thousands are crossing the border stealthily, joining families and former neighbors in Mashhad and other cities. Subject to US-led sanctions, Iran shouldered the multi-billion dollar burden of feeding, clothing, and employing past refugees out of its own dwindling resources. The current conflict is no different. Aid agencies, spearheaded by the World Food Program, are withdrawing their mountains of supplies from Iran's border. Where there are no official refugees, they say, there can be no aid.

But illicit border-crossing is only one of Iran's host of economic problems. It is a heavily indebted, nefariously corrupted, and hopelessly mismanaged country. Its decision making processes are malignantly politicized and centralized. Its population (especially the women and its minorities) are oppressed by a self-serving, inanely retrograde, clerical establishment. Its reform movement and rump of free press are hobbled by a vicious judiciary and a fractured clergy in a fully theocratic country and terrified by the social costs of a genuine overhaul of the economy. Khatami (Iran's popular President), for instance, shows very little interest in matters economic. The Council of Guardians shot down every legislative effort to encourage foreign investments by extending property rights, though it let Iran apply to the WTO (its application is still blocked by the USA) and accede to the New York Convention (UN convention on awards granted in foreign arbitration). Iran is an economic zombie, kept alive with infusions of rising oil revenues - the serendipitous result of a global surge in oil prices.

Rumors are that, for its tacit collaboration with the USA in its anti-terror campaign, Iran will be rewarded with the long overdue suspension of US sanctions against non-US investors in Iran's oil industry (under the 1996 Iran/Lybia Sanctions Act renewed in July this year). The USA will also waive its resistance to Iranian accession to the WTO. Last year, Madeleine Albright, the then Secretary of State, suspended or cancelled a few minor sanctions (mainly against the importation of luxury goods manufactured in Iran). This coincided with a politically futile trip by President Khatami to New York. He then proceeded to China and negotiated a raft of economic collaboration agreements with its leadership.

The rumors may be true this time. But the partial lifting of some of the sanctions would do little to address Iran's fundamental and structural problems and a lot to highlight the USA's hitherto self-defeating intransigence.

Iran is a young country. A full one third of the burgeoning population (it grows by more than 3% annually) are less than 25 years of age. At least 12 million new jobs will be required by 2010 to absorb this demographic tsunami. The current economy generates less than 500,000 new jobs a year - many of which are parasitic, bureaucratic, positions in Iran's vitality-sapping religious nomenclature. Unemployment, currently at least at 20% (officially at 13%), is projected to reach 5-6 million frustrated employment seekers by 2005.

This mismatch between the promise of the 1979 revolution and its dreary outcomes leads to nothing short of social disintegration. Divorce rates and drug abuse are up to decadent Western levels. There is a future-threatening brain drain and the common fantasy is immigration in search of a better, more promising, life in the Great Satan (i.e., the USA), or elsewhere in the West. The mammoth wave of the immigration of Iran's political and intellectual elite (with the $28 billion they owned) following the 1979 revolution - is equalled by today's relentless exodus.

Iran has just emerged from a debilitating 8 years long trench warfare with its neighbor, Iraq (at the time, a major trade partner). It is still under annually renewed and pointless American sanctions which date back to 1980 and which greatly afflict its oil industry, based as it is on American equipment and ruined by the savage and recurrent warfare. Constitutional legislation prohibiting the granting of mineral concessions to foreigners did not help. Iran was able to conclude deals worth $15 billion, including contracts to upgrade oil rigs and increase production with Japanese and Italian firms only recently and, prior to that, with French, Italian, and Malaysian firms regarding its off-shore fields.  Daily output is predicted to go up by 700,000 barrels, which would bring Iran's total daily production to 4.4 million barrels.

The foreign entities will act under a "buy-back" contract and receive compensation from NIOC (the all-mighty and, claim the conservatives, thoroughly venal National Iranian Oil Company, currently controlled by the reformists). These "fees" for exploration and development costs will, though not stated clearly, represent a percentage of intake as in conventional production-sharing agreements. Iran sells natural gas to Turkey and has signed in 1993 a memorandum with India regarding an LNG pipeline which was supposed to traverse the territory of Pakistan. It successfully negotiated the sharing of a major oil field in its disputed border with Kuwait. And it is hungrily eyeing the markets of China and Central Asia.

Though OPEC's second largest producer, Iran, according to the U.S. Department of Energy's "Country Analysis Brief" dated October 2001, has only 9% of the world's proven oil reserves - but an impressive 15% of its gas reserves. It exports little else (though non-oil exports, mainly carpets and pistachios, doubled lately) and its budget is reliant on oil revenues. The impressive "growth" in its GDP (6% in 2000, probably 3-4% this year) and its overwhelmingly positive trade surplus (c. 6% of GDP) reflect merely the changing fortunes in oil prices. Iran's income from sales of oil, derivatives, and gas more than doubled since the nadir of 1998. Yet, even this was not enough to dent Iran's daunting short term portion of its external debt (an otherwise manageable $21 billion) or to substantially raise GDP per capita (less than $1200). The stable currency (rial) is propped only by a gush of inflationary petro-dollars (inflation stands at 14%) as well as by the planned merger of the official (1700 to the $) and black market (8000 to the $) rates. Iran's multi-billion dollar "Stabilization Fund" (the storehouse of its excess oil revenues) may have helped as well.

To complicate matters, Iran is in the throes of a devastating drought in its third year (on top of another 10 arid years in the last 20).  It has cost the economy c. $8-10 billion, has ruined the countryside, and flooded the cities, whose decrepit infrastructure is stretched to the point of dismemberment, with millions of destitute farmers. An antiquated, leak prone, water system compounds the 30% drop in rainfall and the many wrongly located water-consuming industrial projects. Now drinking water is scarce and, in some municipalities, buildings are sinking into the crumbling sewers. The government dares not raise water prices to realistic levels, lest it provokes a repeat of the riots a few months ago.

Iran's agricultural sector accounts for 20% of its GDP and 25% of its workforce. Most of it is water-intensive (rice, maize, grapes, tobacco, sugarcane) and thus susceptible to the vagaries of a natural disaster such as the recent drought. Luckily, timber production and off-shore fishing are less vulnerable and have hitherto survived. Still, Iran is a net importer of foodstuffs.

Just a short 18 months ago, things seemed so different. The new 5 year plan, declared in March 2000, called for a "total restructuring" of Iran's economy including the privatization of its bonyads - the lucrative state monopolies controlled by the ayatollahs (the post office, railways, petrochemicals, and upstream oil and gas). The fostering of a vibrant private sector and the reinvigoration of a shareholding middle class, coupled with a drastic reduction in subsidies for food staples and fuel, were predicted to yield an average GDP growth of 6% and 750,000 new jobs annually. The overriding concept was diversification away from oil dependence and into other industries (such as petrochemicals). Free trade zones were established as a way to circumvent the constant sabotage by the implacably xenophobic Council of Guardians. Even Iran's Ali Khamenei (which carries the North Korean sounding title of "Supreme Leader") called upon the clergy to refuse to engage in business activities. "This is what distinguishes our system from other (systems)" - he exclaimed (in a speech in Isfahan, November 5, 2001). Yet, it was the very same Supreme Leader - the head of the clerical pyramid - who publicly signed into law a series of economic projects just minutes after his afore-quoted speech.

Yet the goodwill of Iran's reformists - now in their fifth year in ostensible power - ran afoul of zealots in their own religious establishment and on Capitol Hill. Internal undermining of free market initiatives coupled with the tremulous geopolitics of Iran's neighborhood and the mutual enmity cultivated by Ayatollahs and Congressmen - served to halt all progress to the great detriment of Iranians and the world at large. Iran's march towards ever greater openness is inexorable. Whether this is achieved through reform or through bloody mayhem is up to the citizens of this tortured country and to sensible decision making elsewhere. The transformation of Iran cannot be achieved solipsistically. It needs help and understanding and patience and encouragement. Alas, the West, mainly the USA, have shown too little of these to make a difference. Perhaps September 11 will change all this. What the atrocity proved is that we are all inter-dependent and that New York is no further from Afghanistan than is refugee-flooded Mashhad.

Turkey's Troubled Water

By: Sam Vaknin

On November 15, Horst Kohler, the Managing Director of the IMF, acknowledged that, despite a "strong implementation" of the IMF program, Turkey's financing gap may have increased by up to an additional $10 billion. He tenuously and untenably attributed this massive failure of the IMF to the September 11 events. He intended to recommend to the Fund a new (the fourth since 1998) stand-by arrangement to be negotiated in Ankara in December. Many regarded this as an American-inspired prize in recognition of Turkey's pivotal role in the anti-terror global coalition.

Its much criticized obstruction of a settlement in Cyprus and its oft-derided sabotage of the creation of the European ex-NATO Rapid Deployment Force were all but forgotten. Issues like its poor human rights record (bombastic sounding constitutional amendments notwithstanding), the suppression of the Kurdish minority, the pernicious role in state affairs (and in criminal affairs) of its military, police, and bloated bureaucracy, and its rising Islamist sentiment were relegated to the backburner. The Copenhagen criteria for the commencement of membership talks with Turkey have been effectively suspended.

Emboldened by new stature, Bulent Ecevit, the Turkish prime minister, threatened the EU with annexation of the Turkish Republic of Northern Cyprus (TRNC) should the Greek populated south become a full member. Turks overwhelmingly long to belong to the EU but such grandstanding does their cause no good. Ecevit's diatribe was intended for internal consumption by the virulently nationalist allies in his shaky left-right coalition.

A widening financing gap was only the latest in a series of bad news. That same week, Balfour Beatty of the UK and Impregilo of Italy pulled out of the controversial $1.6 billion Ilisu hydro-electric dam - together with the export credit guarantees their governments were supposed to offer. They cited human rights and environmental considerations. The Turkish government vowed to press ahead with this flagship project, but its strained finances cast it in doubt. Turkey was forced to internationally issue the equivalent of almost a billion US dollars (partly in Euros) in 5 year bonds (with a yield of over 11%) in the last 30 days alone.

It all started at the end of last year. A banking meltdown in November was narrowly averted with $7.5 billion in IMF funds. The government, unable to repay its monstrous domestic debt, resorted to eroding it (to 80% of GDP) and to preventing a run on the fast dilapidating lira through a debilitating devaluation in February. Foreign investors fled its collapsing capital markets and drew $5 billion, c. 25% of Turkey's foreign exchange reserves, on February 19th alone. Important privatizations failed to attract a single bidder. The stock exchange rose by a dizzying 650% until March 2000 and then crushed by 63% in a few days and the current account worsened by 3% of GDP. Yields on one month treasury bills shot up to 144%, overnight inter-bank rates touched 9000% briefly.

Structural reform stalled and the Prime Minister and the President publicly fell out over suspiciously under-investigated corruption charges. Industrial production crumbled by 9.2% in the year to September and GDP shrank by more than 9% (though it is expected to recover next year). At least 600,000 workers lost their jobs (adding 3% to the official 6% unemployment rate and to an equal number of unemployed). The Turkish lira halved against the US dollar. Turbulence-prone Turkey experiences now its worst recession in 60 years.

The inevitable IMF cum World Bank rescue package signed in May (initially at $15.7 billion) was coupled with (partly successful) pressure to reform the banks, phase out farm subsidies, and introduce market based regulation and competition through accelerated privatization. Turkey's central bank has adopted inflation targeting. Political appointments to Turk Telekom have been reversed. Over-generous wage settlements have been checked. State as well as private banks have been recapitalized, merged, or closed and a dragnet scheme of deposit insurance has been introduced. More than $7 billion of short term state obligations were swapped in June for much longer maturities (though some of the new bonds were linked to the exchange rate of the US dollar). Still, the IMF's projection of a mere 5.5% decline in GDP looks inane. And government bond auctions continue to end with crippling yields (a real interest rate of 18% - or more than 90% nominally in October).

But this externally imposed ambulatory regime failed to gain the support of opportunistic, populist, and venal Turkish politicians, or of the Turkish people. The private sector oriented technocrat (formerly with the World Bank) in charge of implementing the reforms, the Minister of Economy, Kemal Dervis, was continually sniped at and scapegoated. And though one of the IMF's most vocal critics was sacked in July (an event followed by the release of a delayed IMF loan tranche) - many call for early elections of which the likes of Tansu Ciller and Suleyman Demirel (two discredited politicians) or the thinly veiled Islamist Justice and Development Party may yet benefit. The distrust of the current government translates to a mistrust of its economic policies and to the exacerbation and prolongation of the economic crisis.

Turkey's economy is a hybrid of modern industry (29%), trade, and services (56%) with primitive agriculture (40% of the workforce but only 15% of GDP), of state ownership (mainly of infrastructure and industry) with a thriving and vibrant private sector (mainly textiles). Income inequality is great and GDP per capita is c. $2000 in current exchange rates. Despite the fact that it enjoys a robust investment rate of 25% of GNP and a merchandise trade which amounts to 50% of its GNP - Turkey was rated a poor 86 in the 1999 UNDP Human Development Index. Adult female illiteracy is higher than Albania's (at 25%), and infant mortality (38 per 1000) is almost African. Less than 35% of the roads are paved.

More than a million Turks work abroad and their remittances are of crucial importance to the foreign exchange reserves of the country and to its economy. More than 40% of the government's budget is used to defray the domestic debt. This leads to consistent fiscal deficits of 10% of GDP (though the budget sports a primary surplus). Turkey has consistently been on the verge of hyperinflation, with double digit inflation the norm (though recently it dropped below 40%).

Yet, Turkey's fate is determined not in Ankara or Brussels, but in Washington. Should the coalition attack Iraq, or isolate Syria, or fail to coerce Israel (Turkey's improbable ally in the region) to accommodate Palestinian needs - Turkey will be the first and foremost to suffer the consequences. An oil-rich and trouble stirring Kurdish state in Iraq, a water dispute with Syria, a wave of Islamist anti-Israeli zeal - could all undo a year's worth of economic overhaul. The military is likely to re-assert itself in any such crisis and the EU will keep mum, averse to jeopardizing the US-led grand coalition.

Moreover, the likes of Iraq are Turkey's neighbors and natural trade partners. It has a full time Ambassador in Baghdad, another border crossing is being negotiated, and dozens of Turkish business delegations visit Iraq (Turkey's erstwhile second largest trade partner) regularly. "The Economist" quotes Turkey as saying that "it has forfeited over $40 billion in trade because of the UN's continuing sanctions against Iraq." Naturally, the US is no too thrilled about Turkey's gravitation towards its arch enemy.

IFI's like the IMF and the World Bank are bound to play an inordinate and much resented role in Turkey's affairs in the foreseeable future. The World Bank, for instance, has pledged in excess of $5 billion and disbursed more than $2 billion. But most of this money goes towards disaster relief or support of IMF programs - and not to long term development projects. Ordinary Turks do not benefit from the World Bank's activities and believe, however erroneously, that they directly harmed by the IMF policies. Should Turkey also find itself the victim of US geopolitics, a wave of xenophobia and a backlash against liberalism and market economy might well ensue.

 

Hawala, or the Bank that Never Was

By: Sam Vaknin