Erica blog

Afghan Central Bank: Kabul Bank has `stabilized'

KABUL, Afghanistan – Afghanistan's largest bank remained solvent Sunday after a nearly weeklong run on the troubled institution, according to the governor of the nation's central bank, which is being criticized for looking the other way at the bank's mismanagement problems for too long.

Nervous depositors continued to make withdrawals, but Central Bank Governor Abdul Qadir Fitrat said the Kabul Bank was on sound footing. He said no decision had been made about whether the central bank would use money in its coffers to shore up Kabul Bank, partly owned by President Hamid Karzai's brother.

"It's stabilized. The bank is already stabilized and hopefully in the next few days it will become 100 percent normal," Fitrat told The Associated Press. "It is almost 60 percent to 70 percent returned to normal. Most of the branches are now empty (of customers). People have taken their money and gone home. It's very good today. The operation is becoming very normal."

Abdullah Abdullah, who challenged President Karzai in last year's presidential election, criticized the government, saying it should have acted more quickly to correct management problems at Kabul Bank. The run on the bank began on Wednesday following a change in leadership and reports that tens of millions of dollars had been lent for risky real estate investments involving the political elite.

"The extent of the problem seems to me to be massive and the misconduct seems to be a very prolonged one," Abdullah said.

"Why wasn't it dealt with earlier?" he asked reporters gathered at his home for a new conference in which he also questioned whether central bank reserves should be used to bolster the bank's balance sheet.

Uncertainty about the bank's future has further destabilized the war-torn country and efforts by the central government to build an efficient political and financial system to drag Afghanistan out of poverty. If not resolved, problems at the bank could have wide-ranging political repercussions.

It handles the pay for Afghan public servants, soldiers and police in the unstable nation, which is beset by a Taliban insurgency and is awash in drug money and billions in international aid. Kabul Bank's woes further underscore entrenched problems with cronyism and corruption, with millions of dollars allegedly loaned to relatives and friends of the ruling elite to buy property in Dubai.

Sherkhan Farnood, former chairman of Kabul Bank, and Khalilullah Ferozi, former chief executive officer, resigned because, under new reforms, only banking professionals can hold the top operating positions at banks. Farnood, a world class poker player who raised money for Karzai's re-election campaign, and Ferozi each own 28 percent of the bank's shares. President Karzai's brother, Mahmood Karzai, is the bank's third largest shareholder with 7 percent.

President Karzai said the government will guarantee every penny of the deposits in the bank.

"Yes, government officials, including Mr. Karzai himself, assured the citizens of Afghanistan that they were going to save the bank. ... fair enough," Abdullah said. "You'll save the bank, in which your brother is a shareholder ... fair enough. But with which money? Whose money?

"The money belongs to the people of Afghanistan. It's not anybody's private entity. ... Which money will be channeled or is being channeled to the bank? How much money, for what reason and how will it be refunded to the government?"

"We strongly urge the government of Afghanistan and the shareholders as well as the authorities with the central bank to provide clear answers — not to put dust in the eyes of the citizens."

Abdullah said he had heard the central bank had already given the bank $200 million. Fitrat said that was not true — no decision had been made on whether central bank funds would be used to help Kabul Bank.

Deputy U.S. Treasury Secretary Neal Wolin said Saturday while American officials were providing technical assistance to the Afghan government, "This is an Afghan issue. They are taking immediate steps to ensure the stability of Kabul Bank and to protect the financial assets of the Afghan people ... No American taxpayer funds will be used to support Kabul Bank."

Mahmood Karzai said the bank, which he said lost $170 million during the first two days of the run, got in trouble for three reasons.

"First of all, it was lending over the limit of the bank," he said. "Second was investing in Dubai's property. Third was lending to shareholders. These were the three areas where the bank violated central bank regulations.

"I'm sure that the bank has learned the hard way that this is not acceptable," he said.

He said the bank's former chairman said $155 million was invested in two business properties and 18 villas in Dubai.

"Right now, the value of the property is about $160 million so in principle, there is no loss, but the loss is in the accumulated interest," Mahmood Karzai said.

He said he had been living in one of the villas, but planned to move to escape from the controversy over the properties.

"I'm moving out this week," he said. "I rented another place. I never owned that villa. It was in the name of Sherkhan Farnood, the chairman. I was there, and I'm moving out just to get rid of all this talking on this."

Obama kicks off campaign with $50 billion jobs plan

MILWAUKEE (Reuters) – President Barack Obama, scrambling to jump-start job creation in a sluggish economy, proposed on Monday a six-year, $50 billion plan to rebuild aging roads, railways and airport runways.

"We are going to rebuild 150,000 miles of our roads -- that's enough to circle the world six times... We're going to lay and maintain 4,000 miles of our railways -- enough to stretch coast-to-coast," Obama said.

Obama laid out the plan at a rousing labor rally where several thousand supporters cheered his every line, especially when he said the United States cannot have a strong economy without a strong middle class.

"I am going to keep fighting, every single day, every single hour, every single minute to turn this economy around," he said.

The infrastructure plan is one of several initiatives that Obama, who is struggling to persuade Americans that his economic policies are working, is due to unveil this week.

With fellow Democrats facing punishment from recession-weary voters in November 2 congressional elections, Obama is under pressure to do more to create jobs and bring down the stubbornly high 9.6 percent unemployment rate, even as economists agree he has few good options left.

A centerpiece of his new plan to stimulate the recovery is a proposal for the U.S. Congress to increase and permanently extend a tax credit for business research and development.

The tax credit proposal, which was widely expected by investors, would cost $100 billion over 10 years. He is to lay out the plan on Wednesday in Cleveland.

Economists are skeptical any measures Obama takes now will make a significant difference in the $13.2 trillion U.S. economy and point out that investments in infrastructure typically do not stimulate the economy quickly.

While Obama declared some jobs would be created "immediately" under the plan, a senior Obama administration official said the proposed infrastructure overhaul would not have an immediate impact on the economy and said the first jobs would not be created until 2011.

"This is not a stimulus, immediate-jobs plan," the official said told reporters on a conference call.

DOUBTS FROM DEFICIT HAWKS

The White House stressed the plan would not add to the record U.S. deficit, a key issue for voters.

The senior administration official said Obama is willing to pay for the plan by closing some tax loopholes for oil and gas companies "that they certainly don't need."

"This is a plan that will be fully paid for. It will not add to the deficit over time -- we're going to work with Congress to see to that," Obama said.

But Obama faced skepticism from deficit hawks among Republicans, who many experts predict will make big gains in November, possibly winning control of theHouse of Representatives and maybe the Senate.

Senate Republican leader Mitch McConnell called it a "last-minute cobbled-together stimulus bill" and the Republican leader of the House, John Boehner, was equally dismissive.

"We don't need more government 'stimulus' spending -- we need to end Washington Democrats' out-of-control spending spree, stop their tax hikes, and create jobs by eliminating the job-killing uncertainty that is hampering our small businesses," Boehner said.

DETAILS OF PLAN

Under the infrastructure plan, Obama is proposing to:

- Rebuild 150,000 miles of roads;

- Construct and maintain 4,000 miles of rail;

- Rehabilitate or reconstruct 150 miles of runway and modernize the air traffic control system and;

- Set up an infrastructure bank to leverage private, state and local capital to invest in projects.

Transportation construction spending would likely help companies like equipment maker Caterpillar Inc, privately held engineering fi Parsons Corp, and conglomerate General Electric Co.

The administration official said a "substantial number of jobs" would be created by the infrastructure projects. Transportation experts say 35,OOO jobs are created for every $1 billion in transportation construction investment.

Obama used his appearance in Milwaukee -- and a trip to Cleveland on Wednesday -- to set the tone for the fall campaign. Monday's Labor Day holiday marks the informal start of the election campaign season.

He argued that Democratic policies have stopped the bleeding and produced some economic growth, while Republicans have opposed him every step of the way.

"If I say the sky is blue, they say no," he said.

Recalling his 2008 "Yes We Can" slogan, Obama said of Republicans: "Their slogan is 'No We Can't.' No, no, no."

"Yes we can," the crowd yelled.

Obama's visit to Cleveland promises to be more strategic. It is the city where Boehner, who would be House speaker if Republicans win the House, recently urged Obama to fire his economic team.

Other items that Obama could talk about this week are a payroll tax holiday, extending tax cuts for the middle class and increasing money for clean energy.

(Writing by Steve Holland and Ross Colvin, additional reporting by Lucia Mutikani, Ross Colvin, Charles Abbott, Alister Bull and John Crawley; editing by Philip Barbara)