Guilty Party: the International Community in Afghanistan: With 2016 Epilogue

By Graciana del Castillo

Recalling an unforgettable trip throughout Afghanistan in Nowroz 1978, only three weeks before the bloody communist coup d'tat, the author uses places along the way to describe how foreign conquerors, nationalist policies, a variety of ethnicities and religions, and the Silk Route combined to mold present-day Afghanistan. Such places provided the stage for the famous battles of ancient and modern times, as they provided the different livelihoods of the afghan population that still lives mostly from agriculture and livestock production. Gripping accounts on the political and security transitions since 9/11 have not been matched by similar ones on the economic and social ones, which is the purpose of this book. Based on what she saw in a more recent visit in 2011, the author explains to a general audience how misguided economic policies, misplaced priorities, and wasteful aid have led Afghanistan to an infamous record: the country not only relapsed into conflict but became the most aid-dependent country in the world. Muddling through, as in the past, is no longer an option as NATO troops withdraw and aid falls sharply. The author makes a proposal to help the country to move away from the vicious circle of insecurity, aid, drug and food dependency to a virtuous one of genuine investment, rural development, employment opportunities and improved livelihoods. The cost of the Afghan war-in terms of human lives and taxpayers' money-has been outrageous, and taxpayers should demand a debate among all stakeholders on how to move forward.

• Language: English
• Publisher: Xlibris US
• Release date: Apr 2, 2014
• ISBN: 9781493185702

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Copyright © 2014 by Graciana del Castillo.

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Contents

Introduction

Part I Afghanistan Before 9/11

Calm Before the Storm: Nowroz 1978

1.   Ancient History and Primitive Development

2.   Herat: ‘The Breadbasket of Central Asia’

3.   Development in ‘Little America’ and Kandahar

4.   Kabul and the Khyber Pass

5.   Crossing the Hindu Kush Going North

6.   Kabul: Bloody History and Cosmopolitan Present

Coups, Wars, Droughts and Economic Collapse: 1978-2001

7.   Cold War Rivalries, Aid, and the Economy Before the 1978 Coup

8.   The Communist Coup, the Soviet Invasion, and Jihad

9.   The US 1980 Grain Embargo and the ‘Afghan Effect’

10.   Civil War, the Mujahedeen, and the Taliban Rule: 1978-2001

11.   War, Drought, and Economic Collapse: 1978-2001

Part II Afghanistan After 9/11

US Military Intervention and an Ambitious Transition to Peace

12.   Operation Enduring Freedom and the Bonn Agreement

13.   A Complex and Multifaceted Transition to Peace

14.   The Economics of Peace or Economic Reconstruction

15.  Was the International Community Prepared?

16.  A Vicious Circle of Development as Usual and Insecurity

17.  Misguided Policies, Misplaced Priorities, and the Illusion of Success

The Afghan Economy a Decade Past 9/11: Insecurity, Underinvestment, and Aid Dependency

18.  A View from the Field: The Bright Side

19.A View from the Field: The Dark Side

20.  The Cost of the War and Aid Dependency

21.  Rosy Reports, Lousy Indicators, and Dashed Expectations

22.  Could the Vicious Circle be Turned into a Virtuous One?

Concluding Remarks

Bibliography

Endnotes

Epilogue to GUILTY PARTY: THE INTERNATIONAL COMMUNITY IN AFGHANISTAN

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SOURCE: UN Cartographic Section, Nations Online Project.

To my mentor and friend, Nobel Laureate Robert A. Mundell, University Professor and Professor of Economics at Columbia University

To Professors M. Ishaq Nadiri and Barnett R. Rubin who taught me so much about Afghanistan

To all those that contributed to this book with their knowledge and wisdom, as well as with specific comments and suggestions, for which I am most grateful

Advance Praise for

Guilty Party: The International Community in Afghanistan

"With one of the clearest minds of her generation of development economists, Graciana del Castillo has come up with the most exciting book of the decade showing how sustainable growth rather than war is the answer to extremism, insurgency and poverty. Using Afghanistan as her template she writes a brilliant, lucid account of what went wrong and how it can be fixed. Guilty Party should become the Bible of politicians, generals and economists who have to grapple with global problems."

Ahmed Rashid, best-selling author of The Taliban (2001), Descent into Chaos (2008)

and Pakistan on the Brink: The Future of America, Pakistan and Afghanistan (2012)

This book offers a long view of Afghan history and a wide view of recent state-building interventions to help us understand the tragic and wasteful failures of international efforts in Afghanistan since 2001. From these hard lessons, Graciana del Castillo works to build a new paradigm for the vital economics of peace and reconstruction that applies in critical periods of transition between war and normal economic development.

Roger B. Myerson, Glen A. Lloyd Distinguished Service Professor, University of Chicago.

Winner of the 2007 Nobel Prize in Economics

"Guilty Party offers a unique perspective informed not only by the author’s expertise as an economist, but also by her knowledge of and exposure to the country’s historical complexities. She has seen two Afghanistans, both of which are firmly alive in the mind of all Afghans: the pre-war Afghanistan, which was characterized by tolerance, moderation, and a quest towards modernization, and the post-war Afghanistan, which has been plagued by conflict, violence and the destructive shadow of fanaticism that tore the country apart. Understanding the realities of the recent past, particularly the last 30 years, Graciana del Castillo lays a conceptual grid on efforts to rebuild the country after the Taliban. Her book is a cool dismissal of the existing development narrative that is in dire need of rethinking. It is an original, provocative, and passionate account that can inform the debate on the future of international community’s involvement in Afghanistan as the country enters a new phase in its history and embarks towards its transformation decade."

Ambassador Zahir Tanin, Permanent Representative of Afghanistan to the United Nations, New York

Graciana del Castillo, an eminent authority on the economics of failed states, has produced what will be the biggest bombshell of the Afghan reconstruction period. Indeed, del Castillo reveals that Afghanistan has truly become Obama’s war", with 75 per cent of the Afghan war tab being racked up since President Obama assumed office. In Guilty Party, the factoids surrounding Afghanistan are swept away and replaced by facts.

Steve H. Hanke, Professor of Applied Economics, The Johns Hopkins University

"Guilty Party takes a steely-eyed look at more than ten years of ineffective peacebuilding in Afghanistan. Drawing on Afghanistan’s long history of failed international intervention, it exposes the mistakes made time and again by the international community. By failing to focus on the economic reconstruction that is necessary to establish a sustainable Afghan economy and state, Afghanistan’s international partners have left it vulnerable to collapse. Written by one of the best-informed and most experienced scholars of peacebuilding, this book is must reading for those who want to understand what went wrong and what can (still) be done to assist Afghanistan in promoting a sustainable peace."

Michael W. Doyle, Director of the Columbia Global Policy Initiative and Harold Brown Professor of

International Affairs, Law and Political Science, Columbia University

"Guilty Party is a fresh approach to the centrality of economic issues in the midst of war. Its differentiation between normal development policy and what is needed in conditions of stability and reconstruction bear thinking about by development, aid and NGO officials alike. So too does the critique of the UN which often finds it’s tools and bureaucratic realities are no match for its assigned or assumed responsibilities; a problem both UN officials and international policy makers need to take seriously."

Ambassador Ronald Neumann, U.S. Ambassador to Afghanistan (2005-07).

President of the American Academy of Diplomacy

"Guilty Party is a carefully researched book and brilliant exposé that must be read by those seeking to understand how the international community failed in Afghanistan. The book not only provides a devastating critique of reconstruction and development policies, of the neglect of the agricultural sector and of the failure to improve the lives of the local population, but it contains innovative proposals on how to promote inclusive growth in Afghanistan as international aid decreases and foreign forces depart."

Francesc Vendrell, Special Representative of the European Union for Afghanistan (2002-08).

Personal Representative of the Secretary-General and Head of the UN Special Mission for Afghanistan (2000-02)

"This is a significant and penetrating book on Afghanistan that skillfully and perceptively combines history, security, political and economic challenges and tragedies that Afghans have faced in the past thirty five years. It is the misguided design and the enormously wasteful and ineffective execution of programs by the international community to stabilize Afghanistan that constitutes the core of the book. The path not taken is clearly described by advocating a skillful design for the reconstruction of the Afghan economy and arguing for effective use of foreign assistance, which are the fundamental prerequisites of eventual peace and stability of the country and the region. Policy makers, international and Afghan bureaucracies as well as the international press will find Guilty Party highly instructive if they are serious in assisting the Afghan people to find the peace and stability that they so highly deserve."

M. Ishaq Nadiri, Senior Economic Advisor to President Karzai (2005-2008).

Jay Gould Professor of Economics, New York University.

"In this book, Graciana del Castillo provides a penetrating analysis of a country whose tragedy is set to continue—unless the international community acts swiftly, and absorbs the lessons that the author so cogently sets out. Guilty Party is far more than a critique; it provides timely and practical policy recommendations, including the innovative idea of reconstruction zones which can build the economy of Afghanistan, a precondition for eventual peace."

Professor Tony Addison, Chief Economist and Deputy Director, World Institute for Development

Economics Research (UNU-WIDER), Helsinki. Editor of From Conflict to Recovery in Africa (2003)

"In this beautifully written narrative of Afghan history yet devastating account of the repeated failure of outsiders to focus constructively on what really matters to Afghans’ peace and security—their economy—del Castillo speaks not to the policy elite but to the American taxpayer who has been funding these policies. Demand a debate, she urges, about what they do with your tax dollars and soldiers’ lives! Her insider’s knowledge, details of misguided aid and their outcomes, and concrete proposals for what to do now make this essential and compelling reading as we approach the 2014 transition.

Susan L. Woodward, Professor of Political Science, The Graduate Center, City University of New York.

Author of Balkan Tragedy (1995)

In this historically-minded narrative, the author draws on her economic and financial training to provide a searing account of the failure of outside interveners driven by security agendas but nevertheless bearing promises of reconstruction to generate lasting economic and social development in Afghanistan. But, helpfully, she holds out the possibility that Afghans may find their own way to more indigenous and autonomous paths to development following NATO’s withdrawal in 2014. This fine and deeply-felt volume enriches understanding of this important country at a time of major transition for it.

Dr. David Malone, UN Under-Secretary General and Rector of the UN University in Tokyo.

Former President of the International Institute for Peace

"Rebuilding war-torn states is a multifaceted challenge that demands a targeted and sustained whole-of-community solution. Guilty Party addresses legitimate questions about the design and efficacy of internationally-supported efforts to foster lasting peace, shared prosperity and societal stability in Afghanistan and distills elements of a clear strategy to strengthen institutions, build a reliable constituency for peace and foster meaningful economic development. Dr. del Castillo’s historical analysis of Afghanistan’s complex political economy provides an excellent backdrop for her analysis, which highlights the collectively reinforcing nature of security, stability and economic outcomes—and provides lessons that resonate well beyond Afghanistan. Guilty Party is must-read for scholars and practitioners!

Dr. Raymond Gilpin, Academic Dean, Africa Center for Strategic Studies.

Former Director of Economics at the United States Institute of Peace

This is an important book, on an important and misunderstood country. Graciana del Castillo has produced a deep and original analysis of the causes and consequences of the Afghan war. This is must read for anyone interested in world affairs.

Sebastian Edwards, Henry Ford II Professor of Economics, UCLA

In Rebuilding War-torn States, Graciana del Castillo, quite possibly the foremost authority on the economic management of states following internal turmoil, made a seminal contribution to the examination, theoretical and practical, of one of the most stubborn challenges of the post-Cold War era, examining various specific cases which she observed up close and studied in depth. The institutions of global governance created at the end of World War II have still not found the key to grappling with the aftermath of internal conflict. In Guilty Party she has zoomed into the management—or lack thereof—of one of those cases, Afghanistan, which seems likely to haunt us for a while yet. This disturbing new book is an indispensable read for scholars, practitioners and policymakers alike.

Ambassador Alvaro de Soto, former UN Under-Secretary General

and political advisor to the last four UN secretary-generals

Praise for Previous Book

Rebuilding War-Torn States: The Challenge of Post-Conflict Economic Reconstruction (Oxford University Press, 2008)

Rebuilding War-Torn States is that rare book that brilliantly combines the insights of an experienced practitioner with the disciplined argument of a meticulous researcher.

Michael W. Doyle, Harold Brown Professor of International Affairs, Law and Political Science, Columbia University. Special Adviser to the UN Secretary-General (2001-2003)

A must read for policymakers, academics, practitioners and those interested in the political economy of peace.

Dr. Jacob A. Frenkel, Chairman, J.P. Morgan Chase International and Chairman G30.

Former Economic Counselor and Director of Research, IMF

"Very emotional and exciting memories came back to me as I read Rebuilding War-Torn States, particularly the chapter about El Salvador, since I had the fortune of being directly involved in the negotiating process that brought peace to my country, and started the implementation of the agreements, which proved to be an even harder process. I believe that in summarizing the lessons learned from the Salvadoran experience, Graciana is not only very accurate in her appreciations, but is putting forth an extremely valuable tool that can help consolidate peace in other countries around the world. I cannot end these lines without thanking Graciana for her invaluable input during that unforgettable process that we were able to share."

Alfredo Cristiani, Former President of El Salvador

Graciana del Castillo makes an important contribution to debates about peace-building and postwar reconstruction with a substantial, case study-based work.

Gregory Kent, Rebuilding War-Torn States, Times Higher Education (March 5, 2009)

Del Castillo… picks apart the reasons why orthodox approaches to rebuilding postconflict countries have not succeeded, and recommends alternatives… . Without doubt, if the international donors and financial bodies had followed del Castillo’s advice, they should have done a better job.

Alex de Waal, Afghanistan: the Natural State, Times Literary Supplement (November 4, 2009).

Introduction

R ecalling an unforgettable trip throughout Afghanistan in Nowroz 1978, only three weeks before the communist coup d’état, I used the different places along our way to describe in part I of the book how history affected the different regions, cities, and ethnic groups economically, politically, and culturally.

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

At the time of my first trip, it was easy to fall in love with the striking beauty of the landscape and its people and even the dignified poverty that existed in a country of fifteen million people living in peace. Afghans indeed recall pre-1978 times as times of peace and harmony when Kabul was known as the ‘Paris of Central Asia’. The situation was strikingly different during my trip in 2011, a decade after 9/11, when I found a war-torn; aid, drug, and food-dependent; insecure; and highly corrupt country of over thirty million people, with dashed hopes for which the international community collectively is much to blame, as I discuss in part II.

For millennia, the Afghan territory that I visited had been ‘the meeting place of four cultural and ecological areas: the Middle East, Central Asia, South Asia, and East Asia’. Due to a variety of invaders over the centuries, political, economic, and cultural influences (Persian, Hellenistic, Mongol, Turkish, Central Asian, and Hindu) and religious influences (Zoroastrianism, Buddhism, and Muslim) were very much present to different degrees in different parts of modern Afghanistan.

Persian influence predominated in the area until 1748 when Ahmad Durrani, a Pashtun of the Abdali tribe, created the Afghan Durrani Dynasty. Thus the Afghanistan we know today only became a nation in the mid-eighteenth century to the east of Persia (modern Iran). The Durranis were to rule Afghanistan as ‘Shahs’ or ‘Emirs’ until Zahir Shah was deposed after forty years of rule and the monarchy came to an end in 1973.

In the nineteenth century, two empires contested for power in Afghanistan in what became known as the Great Game: the Russian Empire in the north (in territory now belonging to Turkmenistan, Uzbekistan, and Tajikistan) and the British Empire in the south and east (what is today Pakistan). This led to two Afghan-British wars fought at a great cost as they have become legendary.

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

In order to eliminate the existing decentralized government system in which the regions and the tribes maintained a high degree of autonomy—a system that dated from the time of the Persian emperor Cyrus I—Abdur Rahman had to resort to brutal suppression of ethnic tribes including fellow Pashtuns. Issues of government centralization and decentralization have historically played a role in state building and economic development in Afghanistan, which were not addressed properly after 9/11 and have haunted reconstruction efforts, as I discuss in part II.

It was after the second Afghan-British war that Afghanistan ceded control to Britain of the Khyber Pass and various areas in what is Pakistan today and agreed to conduct its foreign policy in accordance with British interests. More troublesome for Afghanistan’s future was Abdur Rahman’s acceptance of the 1,600-miles Durand Line drawn by the British in 1893.

This line, which Afghanistan still does not recognize, became de facto the country’s border with Pakistan thus depriving Afghanistan of any rights over the Pashtun tribes on the other side of the Line. The Durand Line has been a constant source of problems. In the 1960s, it led to the demise of the prime minister after he promoted the Pashtunization issue and the closing of the border with Pakistan—a serious economic problem for landlocked Afghanistan.

In the 1980s, areas on both sides of the Durand Line provided sanctuary to the mujahedeen fighting against Soviet troops. During the post-9/11 war, these areas provided an early refuge for Osama Bin Laden and a base for Taliban and other insurgents to carry out attacks on Afghanistan and US and NATO forces. It is also the area of heavy US drone attacks, which led Pakistan once again to close the border in 2011 after a dispute with the United States.

In exchange for Afghan goodwill at the time the Durand Line was demarcated, the British started subsidizing the Afghan state, which might have been the catalyzer for Afghanistan’s increasing addiction to foreign aid.

While the British continued to influence foreign affairs, Abdur Rahman focused on building the state, including the adoption of a legal and tax system, the improvement of the civil service, the manufacturing of consumer goods and of new agricultural tools, and the establishment of the first modern hospital.

Abdur Rahman was particularly keen to keep powerful neighbors—whether friends or foes—outside his kingdom, which he did by resisting railways, telegraphs, and other such innovations of the time. In this process, he managed to create some degree of stability that his people had not known before, but it came at the cost of strong government centralization and harsh punishments for crime and corruption.

This was indeed different from the effort at centralization after 9/11 where ‘warlords’ controlled border provinces and the collection of customs duties as well as drug proceeds and where corruption was widespread. What did not change is that the country still lacks a railway system that would facilitate the exploitation of its rich deposits of minerals and gems. Infrastructure in a landlocked country is critical for its economic development, and that was the focus of development plans after World War II, financed through United States and Soviet aid, at a time when Afghanistan provided an economic battleground for Cold War rivalries.

My brief historical references will hopefully make the reader be aware of the unusual variety of foreign influences in which Afghan nationalism and idiosyncrasy developed. Indeed, foreign conquerors; nationalist policies; foreign aid; different ethnics and religions; economic and social reforms; and the old Silk Route linking China to Rome have combined in complex and different ways throughout Afghanistan’s history to mould the country—including its economy, its politics, its culture, its language, and its people.

As a harbinger for what was to be the situation after 9/11, many of the aid projects, both United States and Soviet led in the twentieth century, faced all kinds of problems. My purpose is also to show what Afghan leadership and entrepreneurship could achieve in the past, as it could achieve in the present in a few successful enterprises, particularly in communications. This is particularly important to acknowledge as we enter a new era in our relationship with Afghanistan after foreign combat troops complete their withdrawal in 2014 and aid will inevitably fall, as I also discuss in part II.

After World War II, Afghanistan provided an economic battleground for Cold War rivalries, with both the Soviet Union and the United States providing large amounts of aid in an effort to influence Afghan policies.

Up to the communist government that took over in April 1978, the role of the state and the interaction with the private sector changed in fundamental ways over time from the state subsidizing private industries in the 1920s at the time of Amanullah Shah, a strong reformer, to socialist policies and five-year development plans adopted at the time of Zahir Shah in the late 1950s, well before the communist took control of government.

Four types of projects that I mention along the way are particularly relevant to aid and reconstruction policies after 9/11 that are detailed in part II. These projects provided lessons that the international community neglected after the Bonn Agreement of December 2001. The first one is the Spinzar Cotton Company built in the 1930s, allegedly utilizing five thousand full-time employees and financed by Bank-i-Melli (National Bank), acting as an investment bank.

This is the kind of project that the international community could have reactivated after 9/11 to bring some peace dividend to Afghans after years of war. By then, however, the Spinzar plant was in state hands; and the government, with support from the international financial institutions, wanted to set up a perfect neo-liberal economic framework, in which state-owned enterprises would be closed or privatized.

The second type refers to two large irrigation projects essential in a country like Afghanistan, where irrigation is key to agriculture, a sector that employed 75-80 per cent of the labor force and accounted for 90 per cent of exports. Started by a US contractor in the late 1940s, the Helmand Valley project in the south aimed to open up thousands of acres of arid and desert lands for agricultural production. The project was plagued with problems from its start.

A Soviet irrigation project in the 1960s in Nangarhar Valley near Jalalabad in the east did not perform much better. In both cases, foreign experts lacked an understanding of local conditions and local materials and failed to take into account the nature of the soil and of the spring floods. Furthermore, policies that worked in industrial countries were not necessarily best or even applicable in Afghanistan.

The third referred to a number of projects that ignored local realities and offended national sensibilities and were therefore not sustainable over time. A most notorious example was the construction in the 1950s of ‘Little America’ in the capital of Helmand province, emulating the design of an American city and of life in the United States. Throughout Afghan history, different emperors, kings, and even the communist leaders in the early 1980s made efforts at rapid modernization of the economy and society that failed. These experiences provided lessons that we should have analyzed carefully but completely ignored after 9/11.

The last type of project that was relevant to the post-9/11 economic reconstruction involved the series of five-year development plans designed to solicit foreign aid starting in the late 1950s. By consisting simply of a list of projects to request foreign financing without establishing priorities, these plans led to a fragmented strategy where unconnected projects had only limited impact. Just like after the Bonn Agreement, an integrated strategy for economic development—where synergies between the projects could be exploited to increase the productivity of the economy—was lacking.

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

One thing that I hope to convey in part I is the richness of agricultural production at a time when the country had achieved food security, at least under normal weather conditions. In the south, the Helmand Valley irrigation program survived and, by the mid-1960s, had opened up thousands of acres of land in Helmand and Kandahar provinces—where most of the opium is now produced and where most surge troops were sent to fight the resurgent Taliban in 2010.

In our 1978 trip, we could see along the way through these provinces’ green oasis with trees, vineyards, and orchards—where pomegranates, apricots, cherries, figs, peaches, and mulberries had started to bloom. Crops, mostly wheat, were sprouting. In the north, we visited Kunduz, known as the hive of the country because of its many activities and where the Spinzar plant was located. The city was surrounded by fertile agricultural land producing cotton, wheat, rice, millet, fruits, and other products.

Looking at caravans of camels, horses, or donkeys walking parallel to the road, carrying goods and animal feed, and at lonely shepherds or groups of nomads grazing sheep and goats at the distance, it seemed like life was not too stressful in Afghanistan at the time. This was soon to change with the bloody communist coup leading to the Saur revolution of April 1978.

In part I, I also briefly describe the communist government policies, the Soviet invasion in December 1979, and the mujahedeen doing jihad (‘fighting the infidel’) as the Soviets occupied the country in the 1980s. The mujahedeen was a diverse group of warlords—including radical Islamic groups that received heavy financing from the CIA. I then focus on the mujahedeen government and the civil war that followed in the early 1990s as well as the de facto rule of the Taliban in the second half of the 1990s.

Although these events and the growing fragmentation of the country along ethnic, religious, and ideological lines have been thoroughly discussed by security and political experts, I focus primarily on economic and social developments resulting from them.

The destruction of agricultural life and production during the Soviet invasion was major and of grave consequences. At the same time, with Soviet support and to pay their loans, Afghans developed natural gas and exported it to the Soviet Union. In the process, this increased the share of mining in total exports and raised government revenue. While the rural sector suffered greatly from Soviet attacks, Kabul was destroyed physically and economically by the brutal civil war that followed Soviet withdrawal and the eventual collapse of the Soviet-backed government in the early 1990s.

An understanding of the economic consequences of past events is critical since they set up the initial conditions for the economic reconstruction of the country following US-led military intervention and the Bonn Agreement of December 2001. They are critical also to understand how misguided our aid policies have been in Afghanistan. This is the main topic discussed in part II.

Indeed, reconstruction policies that the international community supported after 9/11 clearly indicate how little attention we paid to the mistakes incurred in prior development and aid policies throughout the twentieth century. Likewise, US and NATO troops and billions of taxpayers’ dollars were used to carry out counterinsurgency policies to win hearts and minds of the Afghan population, despite the failure of similar policies previously adopted by the Soviets.

As we prepare to withdraw all combat troops from Afghanistan at the end of 2014 and as we plan our military and economic aid going forward, we should remember that present-day Afghanistan, as the ancient one, was not only moulded by wars and foreign occupation but was itself an influence, not only over countries in the region, but even over faraway parts of the world. The US 1980 grain embargo and what Nobel Laureate Robert Mundell called the ‘Afghan Effect’ (that I discuss in part I), and the military and civilian surge of 2009 (that I discuss in part II) are perhaps the best illustrations of how a country with such small weight in global production and trade can have such a profound foreign policy and economic impact on other countries, both regionally and globally.

Since the time of Ahmad Shah, Afghanistan has provided a story of continuing political struggles aimed at unifying the different ethnic and religious groups and to manage complex political and economic relations with neighbors. These struggles also took place regarding efforts to modernize the country, to create sustainable economic development in the different regions, and to ferociously resist foreign rule and interference despite large volumes of aid and technical support.

Through my own eyes, I want to tell the story of what these struggles have done to the country and where we stand today. It has been three and a half decades of war, destruction, high cost in human lives, and billions of dollars in reconstruction since my story begins with my first trip in 1978. There is no question that the country has made tremendous progress in many areas during the last decade. I report both the bright side and the dark side of what I saw during my last trip in 2011.

The international community, however, has miserably failed in assisting the country to move away from the economics of war into the economics of peace where the large majority could benefit from an inclusive, dynamic, and sustainable economy. Without it—and while the drug economy continues to be the largest and best-paying employer—peace, stability, and national reconciliation will continue to be elusive.

Contrary to my Rebuilding War-Torn States (Oxford University Press, 2008), I have written this book for a non-specialized audience. Over the years, I have found that there are many myths, misconceptions, and misinformation that make an analysis of the economics of war and peace in Afghanistan and our involvement in it difficult, if not impossible, to be grasped by such an audience and even by some experts.

Because I frame the economics of peace in the country within a broader political, security, and social framework, the book is also written for political, security, humanitarian, and development—experts that often view the Afghan situation primarily from the narrower focus of their respective fields of expertise.

Myths and realities about aid and reconstruction are analyzed through my own involvement in Afghanistan and many other war-torn countries through my professional experience at the UN, the IMF, academia, and the financial sector, and through the many interviews that I have conducted and from the expert meetings in which I have participated over the years. My impressions have also been formed by the unusually large amount of materials written on Afghanistan (the most relevant of which are listed in the bibliography) and from my analysis of existing data.

My intention is not to set the record straight on these myths and realities (this would be presumptuous of me) but to give readers enough information—which is often hidden or difficult to interpret because of inaccurate or incomprehensible data, imprecise definitions, and less-than-transparent practices—so that they can make their own informed judgments on the situation in the country and on our involvement in it.

Part I

Afghanistan Before 9/11

Calm Before the Storm: Nowroz 1978

1.   Ancient History and Primitive Development

I was sitting in my office at the Teheran Harvard Business School—officially known as the Iran Center for Management Studies—when I got a call from Susan Haverland. Susan and Kamran Kashani, a professor of marketing at the center, had met as students at the Harvard Business School in Massachusetts, USA, and had come together to Tehran as a couple five years earlier.

While on the phone—and distractedly admiring the striking view from my window of the snow-capped, 18,550-foot Mount Damavand, an extinct volcano in the Alborz mountains—her shocking news caught my attention. Kamran and she had decided to separate.

In the most matter-of-fact manner, she let me know that they had decided that she would be coming alone with my husband and me to Afghanistan. This certainly threw back plans that Kamran and I had meticulously made during our frequent lunches together at the center to drive from Tehran to Kabul and beyond during the Nowroz vacation—also known as the spring or New Year’s vacation.

Nowroz marks the beginning of the Iranian year, and it starts on March 21st, that is, on the first day of spring in the northern hemisphere. At the time of the Persian Achaemenid Empire (648-330 BC), kings from different lands throughout the empire brought gifts to the Shahanshah, the emperor of Persia, to celebrate Nowroz.

In modern Afghanistan, as in other parts of the former empire, the Nowroz tradition is full of symbolism and a happy occasion for its people. Celebration involves the setting of a table or a spread over rugs on the floor with a number of items, all of which start with the Persian letter Seen (s).

These are Sabzeh (wheat or lentils grown in a tray or dish prior to Nowroz to represent rebirth), Samanu (a sweet pudding made from wheat germ as a symbol of affluence), Senjed (the dried fruit of the oleaster, or wild olive tree, which represents love), Seer (garlic which represents medicine), Seeb (an apple representing beauty and health), Somaq (Sumac berries exhibiting the color of the sunrise), Serkeh (vinegar as a symbol of age and patience), Sonbol (the hyacinth flower with its strong fragrance, celebrating the coming of spring), and Sekkeh (coins representing wealth and prosperity).

As I was driving home from the center, I was thinking how on earth I would break the news to Nico, my husband. Would he be willing to drive all over Afghanistan with two women? I was particularly apprehensive of the news since many of our Iranian friends had been trying to persuade us that Afghanistan was not interesting enough for vacation location.

We were spending one year in Iran, where my husband had been transferred from the New York office of Coopers & Lybrand (now PwC) to continue his practice on corporate tax and foreign investment. Amid the large oil boom of the 1970s, the Teheran office had become their largest after New York and London. I had just completed my first year of graduate work at Columbia University and had obtained an MA in Economics, which allowed me to get a job at the center as research associate and work on issues of trade and international finance that were affecting Iran as a result of its oil riches.

The center had been established in Teheran in 1971, as an affiliate of the Harvard Business School in Iran. The dean and the foreign professors were Harvard affiliated and came to Iran usually for two-year terms. The Iranian professors had degrees from Harvard. Located in a beautiful area north-west of Tehran, by 1978, the center had become the most prestigious graduate school in the country and the region, and it had a number of foreign students, mostly from Pakistan but also a few from Afghanistan.

Because our knowledge of the Persian language (Farsi) was so limited, during our stay in Iran we mostly met Iranians who spoke English, had often been educated abroad and had little ties to the region. Some of them suggested that Paris in the spring was indeed a much better option to spend Nowroz in than Afghanistan.

Iranians were proud of their ancient past, snobbish about their booming present, and scornful of Afghanistan, which they considered a primitive and backward country. Although we were not hippies trekking into Afghanistan in search of hashish, as many people of our age were doing at the time, we were enjoying life in Iran and were quite determined to discover its eastern mysterious neighbor.

Unknown to many, a variety of cultures had influenced Afghanistan over the centuries. This had led historian Arnold Toynbee to refer to the country as the roundabout of the ancient world. In fact, Afghans not only had an ancient history, but a large part of it was shared with ancient Persia (present-day Iran).²

Archaeologists and historians have traced the history of Afghanistan back to the Old Stone Age, noting that people probably roamed the land now called Afghanistan as early as 100,000-50,000 years ago, establishing farming communities that were among the most ancient in the world. The earliest evidence of human occupation, a Neanderthal skull fragment, was found in a cave in Badakhshan located in the north-east province with the same name in present-day Afghanistan.³

In Badkhshan is where the narrow Wakhan Corridor extends like a tail in between Tajikistan and Pakistan to reach China, where a pass through the Hindu Kush connects the two countries. At an altitude of 16,000 feet, this pass links Afghanistan and the Xinjiang Uighur autonomous region. This is where China has been fighting an Islamic insurgent separatist movement in an area that represents more than 6 per cent of its territory.

For millennia, what is now Afghan territory has been ‘the meeting place of four cultural and ecological areas: the Middle East, Central Asia, South Asia, and East Asia’. Although tribes related to the modern Afghans have lived in the region for many generations, the earliest reference to the Afghans dates to the third century AD during the Persian Sassanian dynasty (224 to 651 AD).⁴

Ancient Afghanistan, as the present-day one, was not only moulded by foreign occupation but was itself an influence over other faraway parts of the world. In his much-quoted 1973 book Afghanistan, Louis Dupree, an American anthropologist and archaeologist who was a scholar of Afghan history and culture, attributed to Afghanistan and its people a central role in the cultural development of the Tigris-Euphrates valleys, the Indus Valley, and the Nile Valley since the Bronze Age (3,000 to 2,000 BC) when these civilizations developed, with the area becoming a crossroads for trade, conquest, and culture.⁵

In their Invisible History, journalists Fitzgerald and Gould write of trade with Bronze Age Mesopotamia and Egypt at a time when ‘peasant agricultural villages served as the backbone of the economy’ and lapis lazuli was mined in the Badakhshan province of Afghanistan. ‘The dark-blue lapis lazuli inlaid in Egyptian burial masks’, they argue, ‘can only be identified with Afghan mines.’⁶

Fitzgerald and Gould also reckon that

[a] great deal of what is traditionally denoted in historical studies in Persian, Iranian, and even Indian history involves the cities and principalities of what is now Afghanistan. Composed of tribes that were even at the time recognized as ethnically and cultural distinct, ancient cities as Kandahar, Bamiyan, Mazar, Herat, Kabul, Bagram, and Balkh played a leading role in the evolving history of the region and the civilized world.⁷

As they note, rulers from these cities conquered and ruled over kingdoms stretching from the Caspian Sea to China.⁸

The influence of the Persian Achaemenid Empire founded by Cyrus the Great around 660 BC is long-lasting in Afghanistan, not only in terms of culture, traditions, architecture, and language, but also in terms of government organization. Darius I, who became the fourth and greatest king of the Persian Empire in 522 BC, enlarged his dominions by invading Macedonia and subjugating Greece.

Darius I also invaded the territory comprising modern Afghanistan, which had been inhabited by Aryan tribes and controlled by the Medes, an earlier Persian dynasty that ruled over mostly Aryan people in the region. Darius’ Empire, of the monotheist Zoroastrian faith, was the largest empire ever, embracing all the previous civilized states of the ancient Near East, eventually including most of South-West Asia and much of Central Asia and the Caucuses.⁹

Respecting the customs and religions of the conquered lands, Darius I created a successful model for centralized administration in which the government worked for the benefit and profit of its subjects. The administration of the empire was done in a decentralized fashion through satraps or governors of the provinces, a system with strong autonomy at the local level that was to remain in modern-day Afghanistan. The satraps collected taxes, were the supreme judicial authority, and were responsible for internal security and the army.

Darius I is also credited with organizing a new uniform monetary system and of promoting the Aramaic language—variations of which were supposedly spoken by Jesus and were found in written form in the Talmud.¹⁰

Darius I also started many magnificent architectural projects, including palaces in Persepolis and Susa in Iran. Persepolis was a glorious city known to the world as ‘the richest city under the sun’. It was also the trading capital of the Near East and served as the host of the ancient Zoroastrian festival, Nowroz.

Persepolis was where, every year, representatives of each of the countries under Persian rule would bring gifts to show their loyalty to the king and the empire. On entering Persepolis in 331 BC, Alexander the Great, king of Macedonia, looted the city for many days. While living in Iran, we visited the impressive ruins of Persepolis.

In 330 BC, Alexander brought the Achaemenid Empire to an end by defeating Darius III, who rather than fighting cowardly abandoned his troops and fled to temporary safety in what is today Afghanistan. Instead of declaring victory and accepting Darius’ peace offer, Alexander decided to pursue Darius. Before Alexander could catch him, Darius was killed by one of his own satraps.¹¹

According to Dupree, when Alexander entered the Afghan territory in 330 BC on the trail of Darius, he met fierce resistance. Alexander—just as those following him into Afghanistan in recent centuries—failed to realize that he was not simply destroying an empire but was also fighting a nationalist war:

The tribal kingdoms, no longer allies of the defunct Achaemenids, fought to protect their own form of mountain independence and were an important factor which eventually forced Alexander to retreat to Babylon, as his troops grew ever more tired and finally rebellious.¹²

This was despite Alexander’s marriage to Roxana, the daughter of a Bactrian named Oxyartes of Balkh, an ancient city in the north of present-day Afghanistan, near Mazar-i-Sharif.¹³

Alexander, as many invaders who followed him over the centuries (be they the Islamic armies in the seventh century AD, British Indian troops in the nineteenth century, the Soviet Union’s Red Army (also known as the Fortieth Army) in the twentieth century, or the US and NATO forces in the twenty-first century), all learned the hard way of the difficulty for foreigners to hold on to Afghan territory.

More often than not, these invaders could only hold the territory temporarily, with ‘cities submitting, only to rise in revolt as soon as they could, with those hastily converted returning to their old beliefs once the armies had passed.’¹⁴ US counterinsurgency policies since 9/11 have ignored this at a great human and financial cost.

Alexander and his army passed through many of the places we would visit in Afghanistan, stretching from Herat in the west to the Khyber Pass in the east, and from Kandahar in the south to Balkh in the north. These cities—full of history, architectural jewels, and beautiful and proud people and the rugged mountains, valleys, gorges, and passes that link them in convoluted and striking ways—provided the stage for the famous battles of ancient times and the more recent ones. These places caught my imagination in our unforgettable trip in Nowroz 1978.

Having been part of the Achaemenid Empire and influenced by Persia at various times since then, the Persian influence and the trade flows between the two countries were large in the late 1970s. But due to