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Taliban's return to power in August of 2021 caused everyone to ask why the two decades of institution building in Afghanistan failed. This book investigates the root causes of failed reforms in an important area of reform: trade and credit institutions. It explains why the efforts to reform and regulate the economic institutions in Afghanistan failed and what we can learn from their failure. It draws on more than eighty interviews with Afghan merchants, business leaders, money dealers, and government officials in five major provinces of Afghanistan to identify the barriers to access to credit and to understand the performance of formal institutions (banks) and their informal counterparts. This book finds that Afghan merchants were often unable to benefit from the offerings of formal institutions for three reasons: a highly volatile business climate, uncertain contract enforcement, and an unsupportive property rights system. Several informal institutions have emerged that alleviate some of the credit constraints on Afghan merchants. These informal institutions include risk-sharing trade credit operations, money dealers’ short-term working capital loans, Gerawee, and Sar qufli. Although these informal institutions have helped Afghan merchants survive, they are unable to support economic growth. This book argues that countries like Afghanistan should solve their institutional dilemma by adopting an approach which the author calls "Grounded Institutional Reform." Using this approach, a country would formalize existing informal institutions, a development that would vastly increase their effectiveness. While this book focuses on credit and trade in Afghanistan, the analysis of "formalizing the informal" can easily be extended to solve other types of economic problems in similarly situated countries. This book should be of great interest to scholars, policymakers, and development workers in the field of law, finance, and development.
"Taliban's return to power in August of 2021 caused everyone to ask why the two decades of institution building in Afghanistan failed. This book investigates the root causes of failed reforms in an important area of reform: trade and credit institutions. It explains why the efforts to reform and regulate the economic institutions in Afghanistan failed and what we can learn from their failure. It draws on more than eighty interviews with Afghan merchants, business leaders, money dealers, and government officials in five major provinces of Afghanistan to identify the barriers to access to credit and to understand the performance of formal institutions (banks) and their informal counterparts. This book finds that Afghan merchants were often unable to benefit from the offerings of formal institutions for three reasons: a highly volatile business climate, uncertain contract enforcement, and an unsupportive property rights system. Several informal institutions have emerged that alleviate some of the credit constraints on Afghan merchants. These informal institutions include risk-sharing trade credit operations, money dealers' short-term working capital loans, Gerawee, and Sar qufli. Although these informal institutions have helped Afghan merchants survive, they are unable to support economic growth. This book argues that countries like Afghanistan should solve their institutional dilemma by adopting an approach which the author calls "Grounded Institutional Reform." Using this approach, a country would formalize existing informal institutions, a development that would vastly increase their effectiveness. While this book focuses on credit and trade in Afghanistan, the analysis of "formalizing the informal" can easily be extended to solve other types of economic problems in similarly situated countries. This book should be of great interest to scholars, policymakers, and development workers in the field of law, finance, and development"--
As part of the country’s recent economic reforms, a number of banks have been established in Afghanistan. Although these banks hold large reserves, an increasing number of Afghan merchants are reporting problems getting the credit they need to expand their businesses. This dissertation explains why this situation exists and proposes that the government adopt a new approach to designing economic reforms, one that would improve access to finance for Afghan merchants and would generally better policymaking. This dissertation draws on more than eighty interviews with Afghan merchants, business leaders, Sarrafs, and government officials in five major provinces of Afghanistan to identify the barriers to access to credit and to understand the performance of formal institutions (banks) and their informal counterparts. This dissertation finds that Afghan merchants are often unable to benefit from the offerings of formal institutions for three reasons: a highly volatile business climate, uncertain contract enforcement, and an unsupportive property rights system. A number of informal institutions have emerged that alleviate some of the credit constraints on Afghan merchants. These informal institutions include risk-sharing trade credit operations, short-term working capital loans, Gerawee, and Sar qufli. Although these informal institutions have helped Afghan merchants survive, they are unable to support a growing economy. They have only limited capacity to pool savings for investment purposes, and furthermore, their extra-legal practices may have negative consequences on long-term economic growth and attraction of foreign investment. In short, the existing “formal” institutions have sufficient capital, but they cannot operate effectively in an environment like Afghanistan. Conversely, the existing informal institutions, can operate effectively, but, precisely because they are informal, they cannot provide a country like Afghanistan the investment capital it requires. This dissertation argues that Afghanistan should try to address this dilemma using a new approach the author calls “Grounded Institutional Reform.” Using this approach, Afghanistan would formalize existing informal institutions, a development that would vastly increase their effectiveness. There are, of course, good reasons for Afghanistan to continue in its efforts to establish banks and to encourage Afghans to use them. Nevertheless, as the author explains, this policy is unlikely to be an immediate success. Instead, as the banking industry slowly takes root, the formalized “informal” institutions would promote slow, but significant economic development. While from an empirical standpoint, this dissertation focuses on credit and trade in Afghanistan, the analysis of how grounded institutional reform and a policy of “formalizing the informal” can easily be extended to solve other types of political and economic problems in Afghanistan and, indeed, in many other similarly situated countries.
Monograph presenting an economic analysis of the obstacles to rapid economic growth in Afghanistan - examines the low development potential of the country, economic planning, financial policy, the agricultural economy, industry, tax reform, banking, public finance, the foreign trade sector, the money supply, etc. Bibliography pp. 301 to 316, graphs, map, references and statistical tables.
"Reforming Fiscal and Economic Management in Afghanistan sets out the impressive policy and institutional reforms made by the interim and transitional administrations of Afghanistan since the Bonn conference in November 2001. It explores the complexities of managing the significant amount of development assistance and donor interest while balancing the need to respond to donor priorities and to build strong public-sector institutions. The book demonstrates that the budget must be the primary vehicle for developing and then implementing policy, and shows how this strategy has shaped the renewal of Afghanistan's finance ministry. The volume closes with a specific agenda for finance ministry reform and restructuring." "Reforming Fiscal and Economic Management in Afghanistan will be of great interest to finance ministries, national governments, international and nongovernmental organizations, and research institutions - and to anyone interested in post-conflict reconstruction and reform."--Résumé de l'éditeur.
This publication discusses the policy and institutional reforms made by the interim and transitional administrations of Afghanistan since the Bonn conference in November 2001, and considers major fiscal achievements made and remaining challenges involved. Issues considered include: the consequences of conflict on fiscal management; the financial management system; revenue, procurement, audit and budget development aspects; finance ministry functions, accountability, reform and restructuring; managing development assistance and donor priorities; and fiscal management for the provincial municipalities. It includes case studies of post-conflict budgeting in East Timor, Eritrea and Uganda. It finds that the budget must be the primary vehicle for developing and then implementing policy, and shows how this strategy has shaped the renewal of Afghanistan's finance ministry.
Jomo Kwame Sundaram is assistant secretary general for economic development at the United Nations and research coordinator for the G24 Intergovernmental Group on International Monetary Affairs and Development. In 2007 he was awarded the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. --Book Jacket.
Seventeen in a series of annual reports comparing business regulation in 190 economies, Doing Business 2020 measures aspects of regulation affecting 10 areas of everyday business activity.