The Tragedy of Kabul Bank

By Abdul Qadeer Fitrat

The Tragedy of Kabul Bank is the story of a massive fraud, deception and betrayal by a group of crony capitalists aided and abetted by the then highest political authorities of Afghanistan. It is an expose of rampant greed and excessive risk taking that shocked the world and caused enormous damage to Afghanistan's economy and image. The Tragedy of Kabul Bank is a narrative of a notorious case of corruption in post-Taliban Afghanistan, recipient of the largest foreign aid since European reconstruction.

The Tragedy of Kabul Bank is a minute by minute account of multiple crises occurring at the same time and in quick succession and the panic that precipitated the largest bank run the country had ever seen. It is also an astonishing story of sacrifice and bravery by staff of the Central Bank who faithfully investigated members of the most powerful mafia in order to track and recover the stolen funds, but fell prey themselves.

As the then Governor of the Central Bank, Fitrat struggled hard against impossible odds, but failed to bring the perpetrators to justice. Faced with imminent threats to his safety, he fled to the United States in June 2011. He and his innocent colleagues at the Central Bank became the subject of persecution by the ruling cliques experiencing enormous pain and suffering that has continued to this day. The alleged perpetrators who stole nearly one billion dollars of depositors' money and caused the bank's downfall largely escaped justice. Many of them including relatives of political elites were not even in the prosecution list and received no verdict. The most shocking episode came when President Karzai invited the alleged perpetrators for a luncheon in the Presidential Palace and instead of sending them to prison assured them of his unwavering support. The failure to prosecute the perpetrators became a major source of discontent for the international donor community and the Afghan people alike.

• Language: English
• Publisher: Page Publishing, Inc.
• Release date: Aug 1, 2022
• ISBN: 9781640273689

Book preview

Chapter 1

My Journey to Central Bank of Afghanistan

Born in May 1963, I grew up in a very remote and impoverished village called Yakhchew, in the Zardib-o-Sarghailan valley, recently renamed the Shuhada District (in the Badakhshan province located in Northeastern Afghanistan). My father and the rest of the inhabitants in Shuhada District were mostly engaged in peasantry and subsistence agricultural farming, although my father also served as an Imam in our mosque. The quantity of land was and still is very limited; the agricultural programs of the government at that time were extremely weak and almost nonexistent; people sowed and plowed their lands with pairs of oxen and collected their harvests either manually or with primitive metal instruments produced by local blacksmiths. Poverty was widespread and rampant. Infant and maternal mortality was high, though there is no reliable data. Life expectancy was even shorter than in the rest of Afghanistan and much less than today.

At the age of seven, I was sent to live with my uncle and his wife to help them graze baby goats and sheep for our extended family. These relatives spent the entire summer in Gharspan, which is about thirty kilometers (or eighteen miles) away from my family’s home, about fifteen to twenty miles south of the Tajikistan border.

My father and uncle lived together with their parents, children, and wives in one house made of mud and stone. They inherited this house from my grandfather; it had no windows or ventilators, only a hole in the ceiling to allow the sunlight in and the smoke out of the house. A few years later, my father built a small two-story structure with windows, and my parents and siblings moved there in 1973. My mother raised me and my four younger brothers and one younger sister until she (my mother) died when I was fifteen years old.

In February 1971, the headmaster and a few teachers of the Hamidi Elementary School made a surprise visit to our village. This school was one of only two eighth-grade elementary schools in the entire Shuhada District. They were interested in enrolling children in school, but at the time, people never allowed their daughters to go to school, and most were not even ready to send their sons to school. There was a common perception then that schools caused young people to convert to communism or atheism; people also thought their sons’ morality would decline and that they would become homosexual, which is considered one of the worst and ugliest sins in Islam. Of course, those perceptions turned out to be superstitious and absurd; nevertheless, before my enrolment, from out of 120 households in three villages, only four young children had attended school.

My father, however, wanted me to go to school, so when the headmaster asked me if I wanted to go to school, I immediately said, Yes, sir, I want to go to school and learn. The reason behind my enthusiasm was the torturous time that I had spent in Gharspan. I wanted freedom from that difficult life of grazing baby goats and sheep in difficult mountainous terrains, arid hills, and grassless valleys of Shuhada. I wanted freedom from the pain of being away from my parents and from the hot summer days and extremely cold winter days with inadequate clothing. My father and virtually everybody else were stunned by my courage and the way I accepted the headmaster’s offer.

I started school in March 1971, on the third or fourth day of the school year in Afghanistan. The school was about six to seven kilometers away from our village (i.e., about three to four miles), and the road to the school was rough and difficult to travel. It was a dirt road, with big rocks buried in the middle, creating obstacles to vehicles and pedestrians. At that time, people in Afghanistan did not own cars; instead, donkeys and horses were the most widely used means of transportation. My father accompanied me to school on the first day, but after that, I went alone. Initially, I started riding a donkey to go to school, then the donkey proved to be a big headache for me because it sometimes disappeared, and several times, it jumped wildly and violently and hurled me in a corner of the road, leaving my legs and knees badly injured. So I decided to give up riding the donkey and instead bear the pain of traveling on foot.

A year later, the school shifted to a new location, about one kilometer closer to our village. That made it a little easier for me to get to school, but not that much: I was still traveling about six kilometers (almost four miles) one way on a rough, rocky dirt road, which was quite an unbearable challenge for a child only eight or nine years old. That year, we mostly studied in open space because the new school had not yet been built. Only the land had been acquired by contributions from the people of Shuhada, without any government money. In addition, the school building had to be built by the people’s financial and labor contribution. Every day during the break, we students worked hard to remove the rocks, stones, and pebbles from the school ground. We also collected stones for the construction of the building.

During my elementary school years, Afghanistan suffered in many ways. In 1972, the country was hit hard by the worst famine the people ever remembered in their lifetime. After heavy and more than usual rainfall in 1970, the weather conditions turned dry in 1971 and 1972, and large areas of the country did not receive a single drop of rain. The 1972–1973 drought turned out to be the worst the country had experienced in decades. Despite national and international efforts, an estimated eighty thousand to one hundred thousand people died of starvation, and tens of thousands more faced severe hardship.

Over the next few years, there were many violent coups in the government. The first coup was staged on July 17, 1973, by Sardar Mohammad Daud (cousin of King Mohammad Zaher), who heavily relied on Moscow-backed communist elements. He abolished monarchy and declared Afghanistan as a republic. Nearly half of Daoud Khan’s cabinet consisted of procommunist members of People’s Democratic Party (PDPA) Parcham wing. The very same leftist colleagues helped overthrew Daoud’s regime on April 27, 1978, in another bloody coup. Seventeen members of the Daud family, including the president himself, were brutally murdered and dumped in a mass grave in the outskirts of Kabul.

I still vividly remember the night of April 27, when my father wanted to listen to the news, tuning in to the Radio of Afghanistan, but there was no radio broadcast at all that night. Late in the morning of April 28, the broadcast started but only with patriotic national music and some revolutionary poetry. It seemed that the PDPA regime had not yet consolidated its power across the capital and the country at large. They seemed to be negotiating the division of cabinet posts between Khalq and Parcham factions of the PDPA.

On the third day of the coup, Noor Mohammad Taraki, the first procommunist head of state of Afghanistan, was announced to be the chairman of the Revolutionary Council and the prime minister of the Democratic Republic of Afghanistan. A few days later, he announced his cabinet with Babrak Karmal, the head of Parcham Wing, as deputy chairman and deputy prime minister while Hafeezullah Amin, the mastermind of the coup, as minister of Foreign Affairs and deputy prime minister. Taraki immediately repealed President Daoud’s constitution and called the royal family (to which President Daoud also belonged) traitors. He ordered confiscation of the royal family’s properties and deprived the exiled ones of their Afghan citizenship. Taraki started ruling Afghanistan by decrees as there was no valid law in the land. The regime started to penetrate every aspect of life from land redistribution and family spending on wedding to confiscation of extra bushels of wheat or flour kept in a household’s food storage and even to individual ways of thinking. A few months later, a wave of mass imprisonment of the regime’s key opponents began, and it was further expanded to include even schoolteachers and ordinary government employees and local chieftains. Most of those who were captured during the Taraki and Amin regimes vanished and never returned home. Listening to any foreign media except Radio Moscow was banned. People lost their lives simply for listening to Radio BBC Persian service. Reading any pro-Islamic or pro-Western book or magazine except books written on Marxism-Leninism and communist propaganda became an offense punishable by imprisonment or even death, especially publications of pro-Muslim brotherhood youth of Afghanistan called Jamiate Jawanane Musulman.

In the winter of 1978, after I finished at Hamidi Elementary, a group of officers from the Kabul Cadet High School, called Harbi Showanzai, came and selected me from among the top five students in my class. I had been first in my class during my whole time at Hamidi. In early March 1979, I travelled with one of my relatives to Kabul, the capital of Afghanistan, where I had never been before, to begin my studies at the high school. Out of the nearly 3,000 student population of the school, about 950 were newly admitted students in grade nine, divided into twelve classes. They came from all across Afghanistan to study in this school, which was the only cadet high school in the country. Four and a half months after I started at the Cadet High school, I topped not only in my own class but in the entire twelve classes of ninth graders.

However, although I very much wanted to stay in school, Kabul was becoming increasingly unsafe because of political unrest and the rise of communist forces. Students were spying and reporting on each other, and some students were disappearing by the regime’s cruel operatives of AKSA, the regime’s spy agency. I became extremely fearful and began looking for an opportunity to escape without being noticed by the procommunist students or officers.

One afternoon in the fall of 1980 and several months after the Soviet invasion of Afghanistan, I grabbed my bag and left the school dormitory without telling anybody of my intention—not even my closest confidants. I went to hide in a neighborhood on the northern edge of Kabul, where a kind and generous woman from our village was living. I stayed in her home for three days until I learned that a few more students from Kabul University were also planning to flee the reign of the communist regime. Fortunately, I was able to establish contacts with them, and we chose a date to escape Kabul, which was not easy at all. There was danger that along the way, procommunist officers could identify us. If that happened, they could take us into custody and send us to those notorious jails from where no return was possible. In the eyes of the communist regime, escaping was a major crime and, most of the time, carried the death sentence and execution.

It could have been even worse for a fleeing cadet from a premilitary training school, as I was. Outside Kabul and in the mujahideen-dominated territories in the rural areas along Salang Highway to the north, there was a danger that the mujahideen could mistakenly suspect us as procommunist elements. Under mujahideen rules, soldiers and officers who worked with the government and students who continued their studies in government-controlled areas were considered targets unless they proved that they were on the mujahideen side. So I was afraid of both the communists and mujahideen alike, as I was a target for the communist regime and a stranger to the mujahideen at that time.

As arranged with the Kabul University students I had contacted, I traveled to the Sarie Shumali bus stop in the northern district of Kabul City early one morning, from where I knew I could take a bus to the northern city of Kunduz, about 350 kilometers north of Kabul. When I got there, there was no sign of my fellow students who had promised to flee together and accompany me along the way. I waited for quite some time, but I did not see any of them, so I boarded the bus by myself anyway. I was lucky enough to find them a few hours later in Baghlan Province when the bus stopped there. They told me that they were not able to wait longer due to fear of being spotted by the regime’s secret police and therefore left without me, and by the time they arrived, fighting had already broken out between procommunist forces and mujahideen only a few kilometers away. We could easily hear the sounds of tanks and artillery fire from a distance. Fighting continued for almost another hour or so, and we could see tanks and armored personnel carriers belonging to the Soviet-backed government going back and forth, with militia forces sitting on top of them with their guns. After a lull in the fighting, we were allowed to board our buses and start our journey toward Kunduz.

We spent the night in Kunduz. After hours of consultations, some of my older friends advised us not travel by road as it was extremely dangerous. Instead, we decided to go to Kunduz Airport and pose to the Soviet forces stationed at the airport that we were procommunist students and could not travel by road. The Red Army officers at Kunduz Airport promised to fly us by helicopter to Badakhshan, but they couldn’t tell us when, and it was three days before we flew safely home. When I reached our village, my father was stunned to see me after almost two years.

The next day, the local mujahideen commander learned that I had arrived a day earlier. He knew me from before I went to Kabul for study. He sent two of his mujahideen to summon me to the village where he was staying, and he welcomed my return and invited me to join his mujahideen forces. However, my father was totally against my staying in the village and joining the mujahideen fighters. He urged me to go back to Kabul and continue my studies there or go to Pakistan and start studying. I preferred the latter, so I spent a few more weeks in our village; then, in late November 1980, I left for Chitral, Pakistan, with a group of people, through difficult mountain tracks and mountain passes. It took me almost two weeks, walking on foot, to arrive in Chitral.

A few days later, I and a few others who had also fled from various educational institutions left for Peshawar, Pakistan, in pursuit of some sort of learning and furthering our higher education. I wanted to pursue my studies beyond high school, and I was fortunate to meet Professor Burhanuddin Rabbani, the leader of Jamiate Islamie Afghanistan, a predominantly Tajik Afghan political party with moderately progressive views, who was kind enough to appoint me as assistant librarian in a small library, and he promised to search for educational opportunities abroad for me. Professor Rabbani, who was later Afghanistan’s President from 1992–1996, had studied philosophy in Egypt Al Azhar University and taught in Kabul University before becoming the leader of Jamiate Islami Afghanistan in the early seventies. I spent nearly a year in that library, reading scores of books written in the Persian language and books on philosophy, religion, politics, and international relation. Simultaneously, I started writing short essays and commentaries that were published in Mujahid Weekly, a paper that was published weekly, covering news of mujahideen activities and articles against Soviet atrocities in Afghanistan.

*****

In the winter of 1981, I left Peshawar for the Panjsher Valley to visit Commander Ahmad Shah Masoud, where he was based with hundreds of his mujahideen fighting the Soviet Red Army. Commander Masoud headed the military wing of Jamiate Islamie Afghanistan in several northeastern provinces of the country. At that time, it was my wish to see Commander Masoud face-to-face and join him if possible. Accompanied by a group of mujahideen, I traveled on horseback a very long and treacherous way, through snow-covered mountains, for nearly two weeks. Several times along the way, our group came as close as 100–150 meters from Russian Army outposts, so we needed to keep our voices low and avoid making any sound at all. We also saw Russian surveillance aircrafts flying overhead as well as Russian helicopters bombarding a village less than a kilometer away.

Ultimately, we reached Panjsher Valley, but Commander Masoud was nowhere to be found; his locations were kept secret, and he frequently shifted from one location to another during the night due to concerns of possible Russian bombardments. When we finally located him after more than fifteen days, Commander Masoud was very welcoming and kind to us. After a few weeks, he accepted my request to work closely with him in his inner circle. I worked with two others, writing and drafting his letters and correspondence to other commanders fighting in various war fronts across northern and central Afghanistan and to Jamiat’s headquarters in Peshawar. One of the two individuals was Mr. Besmillah Mohammadi, who later became Afghan defense minister between September 2012 and May 2015.

I worked for him for about six months and witnessed massive Russian air and ground assaults on Panjsher in May 1982, where dozens of Russian jets and helicopters and hundreds of tanks, armored personnel carriers, and artillery pieces pounded the valley day and night, flattening most villages. Almost one month into the assault, I was injured in a Russian bombardment in a village called Chimalwardah. A few weeks later, Commander Masoud recommended that I return to Peshawar carrying his messages and letters to Professor Burhanudin Rabbani and other leaders of Jamiat at that time. A few months later, I travelled to my home province of Badakhshan and stayed nearly one year in various parts of eastern districts of Badakhshan, including my home district of Shuhada.

However, due to infighting between mujahideen groups and my father’s insistence to continue my education, I left Badakshan again in late summer 1983 and returned to Peshawar. But this time, I was very disappointed about my future. Despite my father’s advice to continue study, I traveled to Panjsher in 1981 and then back to Badakshan in 1982. By the time that I returned to Peshawar in late summer 1983, almost three years of my life had already been wasted without pursuing my education. Worst of all, I was not optimistic about finding any opportunity to continue my education. I was feeling lonely with utterly shattered hopes for my future. I continued wandering in the city of Peshawar without any meaningful occupation and a hope for the future. I did not have any money to pursue my education. With a turban on my head, I looked like a nomadic shepherd or a peasant loitering in the streets of Peshawar.

One evening I ran into someone I knew who came from the city of Lahore: Qudratullah Shariqi, who used to study in a religious madrasa. He informed me that there was a language institute in Lahore (the second largest city in Pakistan) called Seyed Moudoodi Institute, which was sponsored by Jamaati Islami Pakistan, a fundamentalist Islamist movement in Pakistan that had always supported military regimes in the country and later supported other militant organizations both in Pakistan and Afghanistan. The institute offered courses in English, Arabic, and Urdu without charging any fees—especially for foreigners who came from troubled Muslim countries. The institute had a good dormitory that housed students who came from as far away as the Philippines, the Maldives, Thailand, Malaysia, Indonesia, and Afghanistan. I immediately decided to go to Lahore and enroll in that institute regardless of who financed its operations.

When I arrived in Lahore, I met a few students from the Takhar Province who enthusiastically helped me gain admission. Three of those students became my lifetime friends.² To get admitted into the institute, I had to know some level of English in order to pass the entrance examination. However, I knew nothing except a few words—such as book, pen, and broom. I had only three days to prepare for the test, and the students from Takhar helped me and a friend of mine to prepare for the test. I worked very hard with a great deal of enthusiasm and continued to study until very late at night, all three nights. On the test day, more than sixty students participated, but only twenty got passing marks on the test—and I was among those twenty students! I don’t know how I was able to pass the test with such a low level of English proficiency, but those three days of hard work changed my life for the better and became yet another turning point in my life.

Once I started learning English, I loved the language and worked hard to learn more. I forgot everything else in my life and deeply focused on my studies. Remembering my father’s advice, I decided not to return to Badakhshan until I finished my higher education. Every day, I read English textbooks until long after midnight. At the Sayed Moudoodi Institute, I learned Arabic and Urdu too, but my primary focus was English. I continued studying at the institute until late spring of 1985.

In the summer of 1985, I took an admission test to enter the School of Economics in the International Islamic University in Islamabad, which was one of the finest higher educational institutions in Pakistan in those days. The test was relatively tough, and out of nearly thirty Afghans who took the test, only two were admitted to the School of Economics. Again, I was one of those two individuals. (Interestingly, both of us were from the same province, the same district, and the same Hamidi Elementary School, and we were the first Afghan students to enter that school.)³ The syllabus seemed to have been copied from a US university, and most of the professors and lecturers held PhDs from US or Canadian universities. The teaching standards were high, and getting good grades was tough.

In June 1989, I completed my bachelor of science degree in economics and entered the master’s degree program in September 1989. In January 1990, I got a leave from the university and entered a TOEFL preparation course in Peshawar, Pakistan, which was solely intended to prepare Afghan refugee students to pursue their higher education in the United States. Fortunately, I succeeded in passing the first qualifying TOEFL test, and I entered the program. After several months of hard work, I was selected for a Weber Scholarship Program (a USAID- supported program) to continue my higher education in the United States. This marked the beginning of a new era and the start of an exciting experience in my life.

Going to the United States was a long-awaited dream for me. I never thought I would be able to visit any place outside Pakistan, let alone the United States of America, the most powerful nation on earth. Getting this scholarship provided me not only with a golden chance to continue my higher education but also to continue it in the most advanced economy on earth and a country of breathtaking beauty and magnificent landscapes. The Weber Scholarship Program was a quintessential example of US generosity toward the Afghan people: by the time the last Red Army soldiers withdrew from Afghanistan on February 15, 1989, there was some level of optimism for the future of Afghanistan and the possible fall of the communist regime in Kabul.

In the spring of 1990, I traveled to Islamabad, the capital of Pakistan, to take an International TOEFL test. A few weeks later, I learned I had been accepted to the College of Business at Wright State University in Dayton, Ohio, to pursue my master’s degree in economics. I greeted this news with unprecedented excitement as it was the greatest milestone that I had achieved in my life. I was sincerely thankful to Allah, the Almighty, who bestowed upon me such a great honor and gifted me with such a great opportunity. I had no doubt in my mind that it was an unparalleled kindness of Allah to an unprivileged refugee with no political connection and absolutely no power base. Simultaneously, it was an unmatched generosity of a great nation (the United States of America) toward the most oppressed nation on earth living in refugee camps in Pakistan. One of the salient features of this generosity was the selection process that was entirely based on merit and students’ academic achievements.

I came to the United States on July 1, 1990—a very long day that started at 2:00 a.m. after midnight in Islamabad; we changed planes at London’s Heathrow airport and again at Chicago O’Hare; and we landed at our final destination in Omaha, Nebraska, at around 5:00 p.m. local time. But the joy and excitement of that special day has been everlasting, and every moment of that journey is vivid in my memory—no other trip was like that one.

*****

Following successful completion of my orientation program in Omaha, I left for Dayton, Ohio, to enter Wright State University’s master’s degree program in social and applied economics. (Applied economics is probably the toughest part of economics, as it is highly intertwined with mathematics, statistics, and econometric analysis.) The educational environment at Wright State was highly favorable to both US and international students alike, and I quickly developed an excellent rapport with my professors and other staff members in the College of Business and Department of Economics. Most of my professors and faculty staff were extremely kind and friendly with me and offered assistance whenever I needed, and the majority of my professors wrote me excellent letters of recommendation when I graduated.

In early 1992, I started an internship with the Dayton Area Chamber of Commerce (DACC), which covered foreign direct investment in six counties in and around Dayton. During my internship, I developed a directory of all foreign-owned firms operating in and around DACC; this directory was intended to promote further foreign direct investment in the Dayton business community. I was surprised to find out how much foreign direct investment there was in seemingly less popular and commercially insignificant towns and counties in the relatively quiet Midwest—which are no match to large commercial hubs, such as Chicago and New York.

*****

After I completed my master’s degree in September 1992, I planned to return to Afghanistan, which was at the peak of a devastating civil war and internal strife. Despite harsh criticism by my Afghan colleagues, who warned me that the situation in Afghanistan was very dangerous, I decided to go first to Pakistan and then to Afghanistan. Once I boarded the plane for London, though, I began to think that my friends’ advice was quite logical, and I should not have ignored them. At that point, however, there was no way to turn back, and there was no chance of getting another visa back to the United States after arriving in Pakistan, at least not for the following two years. (One of the requirements of J-1 visa was to stay out of the United States for a minimum period of two years before applying for another entry visa, and I had come on a J-1 visa for my studies.)

Back in Peshawar, Pakistan, I found a modest job at the University of Nebraska at Omaha’s Education Sector Support Project, which was part of a USAID-financed program in Afghanistan in late 1980s and early 1990s. But my heart was beating hard for Afghanistan, my beloved homeland, which had just been freed from the menace of communism but had fallen victim to a brutal internecine war among the very freedom fighters and mujahideen parties who paid heavy prices for its freedom.

*****

One evening in November 1993, I received a message from the office of then president Burhanuddin Rabbani to come to Kabul immediately, where I learned that he had decided to appoint me as president and CEO of Banke Millie Afghan (BMA), in Kabul. President Rabbani knew me since I was eighteen years of age, when he appointed me a deputy librarian in Peshawar, Pakistan, in late 1980. He was also aware of my economics and finance background when I was studying in Islamabad, Pakistan, and Dayton, Ohio. But this was a total surprise to me as I did not have any experience to run a commercial bank, though BMA was a relatively small one. This was the oldest commercial bank in Afghanistan. Simultaneously, there was a critical shortage of qualified and experienced bankers in Afghanistan at that time. This may have prompted the president to take that decision. I left early the next day for Kabul, but when I got there, I learned that the decision on my appointment as president and CEO of Banke Millie had been put on hold because of objections from some coalition partners of President Rabbani’s government at that time. The president of Banke Millie (whom I would be replacing) had been chosen from one of those parties. For fifteen days, I waited in Kabul to get my formal appointment decree from the Office of the President and get officially introduced to the job. Yet nothing happened.

Disappointed by President Rabbani’s decision, I decided to go back to Peshawar in order to retain my existing job in UNO/ESSP. I started writing a letter to President Rabbani to outline my reasons to return to my job. As I was writing this letter, Najmuddin Musleeh, who was chief of staff of the president, saw my handwriting in Farsi. He grabbed my incomplete letter and took it to the president, asking him, "Jenabe Ustad,⁴ do you want to let that kind of a talented young professional leave your government and go back to Pakistan? If I were you, I would introduce him to the job right now, regardless of who says what." Mr. Musleeh then gave me back the letter he had grabbed from me earlier, and he urged me to wait until he advised me otherwise. Later that afternoon, he came up with the appointment decree written by the president himself:

The appointment of Mr. Abdul Qadeer Fitrat as the president of Banke Millie Afghan is hereby duly approved. Burhanuddin Rabbani, President of the Islamic State of Afghanistan.

Mr. Musleeh, accompanied by Mr. Ashraf Shah, who was then chairman of the Economic Affairs of the presidential palace (currently renamed as the senior economic adviser to the president), took me to Banke Millie Afghan and introduce me to my staff. While Mr. Musleeh did not speak, Mr. Shah spoke briefly about me, my background, and my future endeavors.

When I assumed the position of CEO, I learned that the bank was suffering from huge losses. My first duty was to stop or at least reduce the loss ratio and eventually bring the bank to breakeven situation and ultimately to profit. In my first weeks in office, I dedicated some time to staff interviews and fact finding to learn the sources of losses and how to minimize them. During my tenure as CEO, one of my key decisions was to put a complete stop on opening letters of credits, which was the major source of the bank losses.⁵

I remained president and CEO of Banke Millie Afghan, BMA, until March 1995. Unfortunately, during this period, I did not have much success in achieving my objectives due to a raging conflict in the capital between various factions of mujahideen. The BMA headquarters was only a few hundred yards from the front line, where the government of President Rabbani was battling forces loyal to renegade mujahideen leader Gulbadin Hekmatyar and General Dostam. The bank’s existing customers kept withdrawing their savings from the bank as they kept fleeing the country to save their families from the civil war. Very few people were ready to deposit money in the bank. The bank’s international and domestic transfer services had come to a complete halt due to destruction of telecommunication systems by a rocket fire, causing the bank to lose more service-driven revenues. While there was no revenue, the bank continued to pay salaries to its staff and pay for other expenses out of its ever-shrinking capital. Despite all these, the patriotic BMA staff and I were able to put all our efforts together to safeguard much of the existing assets of the bank and to prevent further catastrophic losses.

*****

In March 1995, I was urged by both President Rabbani and Commandar Ahmad Shah Masoud, who was a de facto defense minister, to become the first deputy and acting governor of the Central Bank of Afghanistan. The governor of the bank, Mr. Mohammad Hakim Khan, had already left the country and resided in California. In both leaders’ views, Mr. Yousuf Jawad, then first deputy governor, was not competent enough to run the institution. Commander Masoud was a harsh critic of Mr. Jawad and wanted him to be replaced as soon as possible. Before Governor Hakim, who was an experienced and relatively well-reputed public official, two more governors were replaced in a short span of time allegedly due to competency and character issues. One of them was Professor Zabihullah Eltezam, who previously taught at Kabul University. He was removed after only two or three months in office and was replaced by Ghulam Mohammad Yailaqi, who had ties with both General Dostam and the pro-Iranian Hezbe Wahdat faction of Abdul Ali Mazari. With Governor Hakim’s departure, the Central Bank leadership crisis had deepened. Faced with lack of an experienced and knowlegeble candidates for the post, President Rabbani and Commander Masoud deemed me the only reliable candidate despite my lack of experience.

But I resisted this decision due to lack of experience to work in such a relatively complex organization with daunting challenges. I told them that Banke Millie was way beyond my ability to run, and running the Central Bank required more experience and knowhow, which I lacked at that time. Surprisingly, both of them rejected my reasoning and urged me to take on this responsibility. Under pressure from the country’s top political leadership, I unwillingly assumed the responsibility of the Central Bank at the time of high crisis. Inflation was running in triple digits, and AFG five-thousand- and AFG ten-thousand-denomination banknotes had already been printed. Government revenue was less than 5% of its total expenditures. Most revenues were being collected by local warlords and mujahideen commanders, which did not come to the government coffers. Treasury Single Account (TSA) of the state did not exist yet.⁶ There was no discipline in government spending: line ministries with revenues were accustomed to spending their own revenues independently. They not only kept the revenues of those ministries in their independent bank accounts but also demanded extra budget funds from the state. The government did not approve any formal budget for fiscal years 1995 and 1996. As I understand it, no budget law and financial-expenditure-management law existed at that time. Most of the government expenditures were approved on an ad hoc basis.

In addition, the government’s sole source of financing for its ever-increasing expenditures and ever-widening budget deficit was through borrowing from the Central Bank. Traditionally, borrowing from the Central Bank had been common in Afghanistan even before the communist regime came into power in 1978. However, during the regimes of King Mohammad Zahir and President Mohammad Daud (1933–1978), roughly 85% of the central government budget was financed through domestic revenues and foreign aid, and only up to 15% of the budget was financed through monetization or borrowing from the Central Bank. The pace of deficit financing or borrowing from the Central Bank accelerated during the communist regime and continued well into the Taliban’s rule.⁷

During my tenure as first deputy and acting governor of the Central Bank, I faced many challenges. The Central Bank had just attained some level of independence from the Ministry of Finance (MOF), as the law on money and banking had been amended a year earlier, in 1994. Before the amendment, the governor of the Central Bank was appointed by the president or king at the advice of the minister of finance. Notwithstanding complete independence from the MOF, the Central Bank was not in a position to reject the government’s request for deficit financing. The government request for printing money was relentless, and the Central Bank was the only source of financing budgetary deficits since the communist regime came into power and lost most sources of foreign aid. The borrowing from the Central Bank especially exacerbated after the Soviet Union’s disintegration and the Russian halt on Afghan natural gas imports, which constituted about 60% of the Afghan budget.

Prior to 2002, the governor of the Central Bank was the chairman of the board of directors of all six state-owned banks, even though this contravened international best practices. As I attended the annual meetings of each bank and read the reports, I was shocked by the amounts that borrowers had defaulted to those banks. As a result of those bad loans, mostly issued during the communist regimes, many of those banks had already become insolvent and were not able to afford their normal operations outlays. I launched a campaign to recover those loans by exerting pressure on defaulters, but most of them had already fled the country.

Bank Pashtany was the hardest hit by such risky loans and delinquent borrowers. One of the largest borrowers of Bank Pashtany was Gulabuddin Sherzai, who was, at the same time, minister of commerce and chairman of the Afghanistan Chamber of Commerce during President Rabbani’s administration. Simultaneously, he had established a bank called Gulabuddin Sherzai Islamic Bank without any valid license from the Central Bank. While he was lavishly spending hundreds of thousands of dollar on so-called charitable programs, he owed nearly $7 million to Bank Pashtany for numerous letters of credit that he had opened with the bank for importation of goods and commodities from abroad. In one of the meetings, it was mentioned that he had stopped repayment of his loans due to unspecified reasons. Most of those loans were nonrecourse loans issued under pressure, allegedly by recommendation from the office of the procommunist Prime Minister Khaliqyar to Mr. Sherzai. However, it was difficult to independently confirm these reports (as Prime Minister Khaliqyar no longer lived in Afghanistan). In late1995, I decided to hold a meeting with Mr. Sherzai to encourage him to repay his loans to Bank Pashtany, which was in the worst financial condition. Also, I wanted to attract his attention to the fact that opening a bank business and receiving deposits from the public without a valid license was a violation of the Central Bank regulation (though at that time, there was no legal framework governing the establishment and operation of private banks in the country; nonetheless, under my instruction, the Central Bank had prepared a regulation requiring private investors to receive a license before establishing a bank).

Despite the fact that Mr. Sherzai held the position of minister of commerce, I requested the meeting to take place in my office at the Central Bank, and he agreed to my proposal. I had heard that whenever Mr. Sherzai came to the Central Bank before, he brought dozens of envelopes full of cash and distributed them to guards and even officials of the Central Bank, so I sent a message to all guards and bank officials not to accept any money or favors from customers and outsiders who visit the bank, including Mr. Sherzai. When Mr. Sherzai arrived for our meeting, it looked like an invading army was attacking the bank: he had about sixty bodyguards and several armored personnel carriers traveling with him ahead and behind in a convoy of cars. Nearly half of his bodyguards entered the bank and took positions near the windows, in balconies, and in hallways of the bank and inside a large conference room beside my office. The two unarmed guards who were standing at the entrance of my office were very frightened.

Then, when Mr. Sherzai entered the bank and tried to distribute his envelopes of cash to guards and staff of the Central Bank present near the main entrance, none of them accepted those envelopes. It was a shock to Mr. Sherzai to see a change of attitude and behavior in the institution. He probably had heard about me and my attitude toward receiving gifts and other favors. Therefore, he had brought me only a copy of the Holy Quran and a pen, not an envelope of cash. I gave the Quran and the pen to two of the Central Bank guards, who accompanied him to my office right in front of him and thanked him.

Then our meeting started in earnest. I explained to him, "Jenabe wazir saheb, Mr. Minister, I was told that you owe Bank Pashtany quite a significant sum of money and you have not made any payment for quite some time for the last couple of years. He replied, I do not owe a penny to Bank Pashtany. Actually, the Islamic State of Afghanistan owes me 100 billion afghani [an equivalent of $14 million]." I was stunned by the minister’s unfounded statements and misrepresentation of facts in such a bold manner. I had already received a copy of the file from Bank Pashtany, along with a letter requesting help from the Central Bank. I showed him the file containing all his loans and explained each of his borrowings, item by item, along with all supporting documents that he had signed. He claimed he had repaid the money long ago. The negotiation went nowhere as he turned uglier and uglier in his use of words. Ultimately, he rose from his seat, issuing ultimatums and unspecified threats against me, and left the bank accompanied by his large entourage of bodyguards.

A week later, a leaflet (night propaganda) appeared in the city of Kabul full of slander, libel, and curses against me, typed with a strange typewriter. Several months later, when Mr. Sherzai’s house was inspected by the Office of Attorney General, a sample of those same leaflets was found there.

The confrontation between Mr. Sherzai and the