The Morning Dispatch: Afghanistan’s Economic Collapse

Happy Tuesday! We’re a day late, but we wanted to thank our interns—Mary Trimble, Augustus Bayard, Benjamin Woodard, Emma Perley, Isaac Willour, and John Scudero—for all their great work this summer, and wish them well as they head back to school. Those 10 weeks flew by!

Quick Hits: Today’s Top Stories

• The United Kingdom’s Medicines and Healthcare Products Regulatory Agency announced Monday it approved for adult booster use a bivalent version of Moderna’s COVID-19 vaccine designed to target both the virus’ original and BA.1 Omicron strains, becoming the first country to do so. Moderna is developing a separate vaccine targeting the BA.4 and BA.5 Omicron variants for the U.S. market, and it is expected to be authorized in time for a fall booster push.

• The Pentagon reported yesterday the United States’ al-Tanf base in Syria was targeted with multiple drones Monday morning, but several failed and U.S. and coalition forces were able to engage the others before they inflicted any casualties or damage. Thus far, no country or group has claimed responsibility for the strike.

• Wu Qian—a spokesman for the Chinese Defense Ministry—announced Monday the country’s military was conducting additional patrols around Taiwan in response to a congressional delegation led by Democratic Sen. Ed Markey of Massachusetts that touched down on the island on Sunday. “The Chinese PLA continues the military training for war-preparedness to firmly safeguard China’s national sovereignty and territorial integrity and resolutely smash any form of the ‘Taiwan independence’ separatist schemes and interference attempts by external forces,” Wu said.

• China’s National Bureau of Statistics released a host of economic indicators on Monday showing economic activity in the country—from factory output, to consumer spending, to investment—slowed in July, leading the People’s Bank of China to cut a key interest rate by 0.1 percentage point. The United Kingdom’s Office for National Statistics reported Friday—days after the Bank of England predicted a recession by the end of this year—that British gross domestic product fell 0.6 percent in June, and 0.1 percent over the second quarter overall. Japan’s economy, meanwhile, grew at an annualized 2.2 percent pace in the second quarter, surpassing the country’s 2019, pre-pandemic GDP levels for the first time.

• Kenya’s Independent Electoral and Boundaries Commission (IEBC) declared William Ruto—Kenya’s deputy president since 2013—the winner of the country’s presidential election yesterday, defeating longtime opposition leader Raila Odinga 50.5 percent to 48.9 percent. A chaotic scene broke out just before IEBC chairman Wafula Chebukati announced Ruto’s victory, as four of the electoral commission’s seven members disowned the results due to “the opaque nature” of the general election’s final days, leading protests to break out across the country.

• The FBI announced Monday its Operation Cross Country—a coordinated effort to find and assist victims of human trafficking, particularly children—located 84 victims of child sex trafficking, 37 actively missing children, and 141 adult victims of human trafficking during the first two weeks of August. Agents also identified or arrested 85 suspects on charges of child exploitation or human trafficking, the Justice Department said.

• Politico reported Monday that a federal grand jury investigating January 6 has subpoenaed Eric Herschmann—former Trump White House lawyer—for documents and testimony, following earlier subpoenas of former White House counsel Pat Cipollone and deputy White House counsel Patrick Philbin. Separately, the office of the Fulton County District Attorney told Rudy Giuliani’s lawyers on Monday that Giuliani is a target of an ongoing criminal probe into efforts to overturn the results of the 2020 election.

• Days after a federal judge unsealed the search warrant and receipt of materials related to the FBI’s probe at Mar-a-Lago, the Justice Department made clear it opposes the release of the sworn affidavit describing the rationale and basis for the search. “If disclosed, the affidavit would serve as a roadmap to the government’s ongoing investigation, providing specific details about its direction and likely course, in a manner that is highly likely to compromise future investigative steps,” U.S. Attorney Juan Gonzalez and Justice Department counterintelligence chief Jay Bratt wrote in a court filing on Monday. “The fact that this investigation implicates highly classified materials further underscores the need to protect the integrity of the investigation and exacerbates the potential for harm if information is disclosed to the public prematurely or improperly.” Late Monday night, former President Donald Trump called for the “immediate release of the completely unredacted affidavit.”

• An effort to recall Los Angeles County District Attorney George Gascón will not proceed after the county registrar’s office ruled that nearly 200,000 signatures submitted by recall organizers last month were invalid—duplicates or people not registered to vote in the area. Gascón was elected to serve as Los Angeles County’s DA in 2020, and his criminal justice reform efforts have faced criticism—including from his own prosecutors—as violent crime continues to rise.

Afghanistan’s Economic Meltdown

In the year since the United States withdrew its military from Afghanistan, the country’s economy has gone into free fall.

It’s easy to find reports of individuals suffering—a man selling most of his possessions to feed his family; a former German teacher waiting in a food line; people selling organs or their children to survive. It’s also easy to find staggering statistics—the United Nations estimates 1 million children face severe malnourishment and 25 million Afghans are in poverty, while more than half the population relies on humanitarian aid for survival.

There are myriad reasons for the collapse. Many of the country’s most educated citizens fled during the withdrawal, while the industry that had sprung up around the American war effort—security, support staff—folded. The war in Ukraine has driven up food and fuel prices, exacerbating already grueling inflation—in June, the World Bank reported, Afghanistan saw 50 percent year-over-year inflation for basic household goods, up 10 percentage points from May. And the International Rescue Committee aid group estimates the Taliban’s decision to restrict women’s access to work reduced Afghanistan’s gross domestic product by about 5 percent.

But perhaps the biggest reason for Afghanistan’s economic disintegration is that the world slammed the door on the country’s economy when the U.S. left. Prior to the U.S. withdrawal, as much as 80 percent of the Afghan government’s spending came from foreign assistance. But no nation recognizes the Taliban as Afghanistan’s government (though several have established diplomatic relations), and U.S. sanctions drove out public and private investment.

The U.S. also froze approximately $7 billion of Afghanistan’s central bank foreign currency reserves—European countries froze around $2.1 billion—crippling the bank’s ability to manage inflation, stabilize the national currency, and import food and fuel. President Joe Biden has since designated about $3.5 billion to potentially pay claims by families of 9/11 victims and the rest to aid Afghans, but the U.S. hasn’t finished negotiating how to release the money into Afghan hands.

All these measures created a liquidity crisis—not enough cash to go around. Afghanistan’s central bank for a time limited withdrawals to preserve its remaining reserves, which in turn made it more difficult for businesses to function—it’s hard to import goods or pay workers when you can only withdraw a few hundred dollars from the bank and the national currency has depreciated. Afghans have gotten around the banking limitations somewhat by using centuries-old informal cash transfer networks that rely on trust, but they’re less efficient and more risky than typical banks.

Direct humanitarian aid—including from the U.S.—has mitigated the full impact of the meltdown. The Red Cross has helped the nation’s hospital system while aid groups hand out food and sponsor job programs, shipping cash into the country to pay salaries. But aid groups can’t restore the economy, and the U.N. has raised less than half of the $4.4 billion it asked international donors to contribute for humanitarian aid. 

“It’s a stopgap measure,” Shah Mehrabi—a member of the Afghanistan central bank’s council and an economics professor at Montgomery College—told The Dispatch. “There will be fatigue from donors. … We cannot depend permanently on humanitarian aid to be able to rescue the ordinary Afghans from [not] being able to have access to the basic necessities of life.” If economic limitations continue as humanitarian aid wanes, Mehrabi argued, Afghanistan’s relative stability may dissolve—triggering a flood of refugees into Europe and leaving room for more terrorism to take root.

Once the Taliban became Afghanistan’s de facto government, the Biden administration issued exceptions to preexisting sanctions to allow remittance payments, aid, and business to flow more freely. But while aid agencies have rushed in, Afghanistan’s already weak economy hasn’t incentivized private companies and banks to overcome the chilling effect of sanctions—which the U.S. is unlikely to lift altogether.

“We have these three goals that are kind of in conflict,” Adam Weinstein—a Middle East-focused research fellow at the Quincy Institute for Responsible Statecraft—told The Dispatch. “We want to keep the country afloat. We don’t want the money to be misused. And we also don’t want to normalize things to such a degree that we have no leverage over the Taliban.”

Although the Taliban wants access to the currency reserves—and to international monetary systems—it hasn’t adjusted its human rights record accordingly. Since taking power, the Taliban has shut women out of secondary schools, forbidden women from traveling alone, and required them to wear full body coverings. Reports of child marriages and extrajudicial killings have increased, and Taliban security forces last week dispersed women protesting the changes by firing over their heads.

“Taliban decision makers … have prioritized consolidation of their control and enforcing their interpretation of Islam rather than secure greater economic assistance,” Richard Weitz—director of the Hudson Institute’s Center for Political-Military Analysis—told The Dispatch. “They, I think, expected that the international resistance would wane over time.” 

That hasn’t been the case so far, and Weitz predicted it won’t change. “If they continue to repress women, continue to harbor international terrorists and engage in other unacceptable behavior, then it will be really, really difficult for the United States to deal with them, even in areas where the U.S. has really wanted to—such as promoting Afghan civil society health.”

Nor has the Taliban assuaged American officials’ fears that foreign money will make its way into leaders’ pockets or terrorists’ hands. Ahmad Zia Agha—sanctioned for allegedly helping finance bombs and Taliban associates outside Afghanistan—is reportedly second in command of Afghanistan’s central bank, ostensibly responsible for fighting terror finance and money laundering. Taliban leaders have reportedly diverted humanitarian aid to pay government salaries, and the U.S. found al-Qaeda leader Ayman al-Zawahiri holed up in Kabul under the Taliban’s nose.

That last incident reportedly scuttled any hope of quickly returning a chunk of the $7 billion to Afghanistan’s central bank. “We do not have confidence that that institution has the safeguards and monitoring in place to manage assets responsibly,” top U.S. envoy to Afghanistan Tom West told the Wall Street Journal. “Needless to say, the Taliban’s sheltering of al Qa’ida leader Ayman al-Zawahiri reinforces deep concerns we have regarding diversion of funds to terrorist groups.”

The U.S. has been negotiating with the Taliban to set up a third-party trust that would make monitored payments. A State Department spokesperson told The Dispatch the U.S. has “made considerable progress” on establishing that fund, but added, “the recent revelations of the Taliban’s flagrant violation of the Doha agreement illustrate the importance of remaining clear-eyed in our dealings with the Taliban. Our approach to the future of these assets will continue to reflect that reality.”

“Right now, we’re looking at mechanisms that could be put in place to see to it that these $3.5 billion in preserved assets make their way efficiently and effectively to the people of Afghanistan in a way that doesn’t make them ripe for diversion to terrorist groups or elsewhere,” State Department spokesman Ned Price told reporters yesterday.

“I was one of the biggest advocates of returning the money to the central bank,” Weinstein said, but al-Zawahiri’s presence in Kabul adjusted his view. “The Taliban have created conditions where they’ve really put into question whether they can be trusted with the central bank.”

Still, he argued, the U.S. should continue pursuing the third-party trust option as a compromise. “What I don’t want to see happen is that 20 years from now, we’re still talking about what to do with this money,” Weinstein said. “And I think there’s a real risk that is what’s going to happen.”

In the meantime, Mehrabi argued, ordinary Afghans suffer the most under the economic restrictions. “It does not affect the government leaders and those who are in power,” Mehrabi said. “Who [do] the sanctions hurt? Innocent families.”

Worth Your Time

• A remarkable scientific breakthrough could restore sight to the blind—and in an affordable way. “Unlike human corneas, which must be transplanted within two weeks, the bioengineered implants can be stored for up to two years, which could help with shipping them to those who need them the most,” Rhiannon Williams writes in the MIT Technology Review. “Surgeons in Iran and India conducted a pilot trial of 20 people who were either blind or close to losing their sight from advanced keratoconus. This disease thins the cornea, the outermost transparent layer of the eye, and prevents the eye from focusing properly. The implant restored the cornea’s thickness and curvature. All 14 of the participants who had been blind before the operation had their vision restored, with three of them achieving perfect 20/20 vision. While human cornea transplants in patients with keratoconus are traditionally sewn in using sutures, the team experimented with a new surgical method that’s simpler and potentially safer.”

• Ruy Teixeira—a liberal political scientist who recently joined the conservative American Enterprise Institute—has a dire warning for Democrats: They could be in the process of frittering away their advantage with Hispanic voters. Mountains of polling has recently found Hispanics disagree with the notions—popular on the progressive left—that America is an inherently racist and irredeemable country. “The typical Hispanic voter would stand instead with President Bill Clinton when he said: ‘There is nothing wrong with America that cannot be cured by what is right with America,’” Teixeira writes in a Substack post. “It is difficult to avoid the conclusion that Democrats’ emphasis on social and democracy issues, while catnip to some socially liberal, educated voters, leaves many Hispanic voters cold. Their concerns are more mundane and economically-driven. This is despite the fact that many of these voters are in favor of moderate abortion rights and gun control and disapprove of the January 6th events. But these issues are just not salient for them in the way they are for the Democrats’ educated and most fervent supporters. In short, they are normie voters.”

• Democratic billionaire George Soros has, by his own admission, had an outsized influence on our politics over the years with his political donations—just as GOP mega-donors Sheldon Adelson, Paul Singer, and Charles and David Koch had on the right. “All well and good. America is a free country, and Soros has every right to spend his vast fortune however he wants within the boundaries of the law, as well as to justify that spending in the public square,” James Kirchick writes in Tablet Magazine. “[But] the same applies to those of us inhabiting lower tax brackets, who have no less a right to criticize Soros for how he’s trying to influence American public life.” Because Soros is Jewish, however, many progressives have adopted the tactic of dismissing any criticism of his political advocacy as anti-Semitic—a charge Kirchick, himself Jewish, believes is unfair. “The argument that the mere mention of the name ‘Soros’ is tantamount to antisemitism, which is effectively the position of the progressive political, media, and activist elite, is made entirely in bad faith,” he writes. “If the mind of a Soros supporter, upon hearing his name, races immediately to an image of a ‘Jew,’ and one who serves as a stand-in for ‘the Jews,’ it’s probably not the motives of the critic that need questioning.”

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Toeing the Company Line

• On today’s episode of Advisory Opinions, David and Sarah are joined by Ed O’Callaghan—partner at WilmerHale and former principal associate deputy attorney general—for a discussion of the FBI’s search of former President Donald Trump’s home. What did we learn from the unsealed search warrant? Why are we talking about the Espionage Act?

• It’s Tuesday, which means Dispatch Live is back tonight! Tune in at 8 p.m. ET/5 p.m. PT to catch Sarah, Steve, David, and Andrew chatting about tonight’s primary elections in Alaska and Wyoming and the latest out of Mar-a-Lago. Keep an eye out for an email later today with details.

• On the site today, Audrey previews today’s primary matchup between Rep. Liz Cheney and her heavily favored challenger Harriet Hageman, Andrew examines how abortion policy is affecting the Georgia governor’s race, and Daniel Darling examines electoral trends to argue that conservatives should see Hispanic immigrants as natural allies.

Let Us Know

Do you think the Biden administration is doing the right thing by not releasing the frozen assets to Afghanistan’s central bank?