Afghan bank crisis talks "a waste of time" - minister

Afghan finance minister Hazrat Omar Zakhilwal speaks during an interview with Reuters in Kabul May 18, 2009.

KABUL (Reuters) - Negotiations between Kabul and the IMF over a banking scandal that put tens of millions of dollars in aid at risk appeared to break down on Monday when Afghanistan's finance minister called future talks "a waste of my time".

"We are now negotiating with a partner who is not a willing partner to actually conclude this," Omar Zakhilwal told a news conference.

"We find this shifting of position and rigidity on issues that are not consequential ... it's a waste of my time, absolutely."

Tens of millions of dollars in aid payments from foreign donors have been delayed over the crisis, sparked by the failure of Afghanistan's biggest private lender after it issued hundreds of millions of dollars in unsecured loans to the country's political elite.

Reuters reported on Friday that the International Monetary Fund had rejected Afghanistan's plans to deal with failed lender Kabulbank and other broader financial concerns. That step automatically blocked the payment of $70 million in aid from foreign donors.

Diplomats involved in negotiations between Afghanistan, donors and the IMF said Kabul had failed to address the Fund's concerns and now feared a "cash crunch" as soon next month.

Afghanistan relies on foreign aid for about 40 percent of its operating budget and all of its multi-billion dollar bilateral reconstruction and development projects.

The IMF has not renewed its support programme since last September, when news of the Kabulbank crisis began to emerge. An IMF programme is a critical seal of approval needed by most international donors before they pledge aid.

No payments have been made into the World Bank-backed Afghanistan Reconstruction Trust Fund (ARTF) -- the main aid vehicle for most foreign donors -- for the past three months.

FINANCE MINISTRY PROPOSALS

The Ministry of Finance sent a letter to the IMF last week with two proposals to clear the way for support, but diplomats said these were rejected as inadequate to guard against future abuses.

One of the proposals regards a supplementary budget to repay the central bank for money it spends bailing out Kabulbank.

Zakhilwal said Afghanistan's parliament had already rejected a plan to repay an initial $70 million to the central bank. He said Afghanistan had already satisfied the IMF on as many as 10 previous proposals.

"The IMF is making excuses. We have met all their demands," he said, describing the supplementary budget as "non-consequential".

He said on Sunday the parliament would address the issue again next month when lawmakers return from summer vacations.

Corruption, bad loans and mismanagement cost the politically well-connected Kabulbank hundreds of millions of dollars in what Western officials in Afghanistan openly call a classic Ponzi scheme.

Kabulbank has about $926 million in outstanding loans, of which around $900 million is considered to be at risk. Afghan officials say about $347 million will be recovered, but donors want more aggressive action on asset recovery.

Zakhilwal said the central bank had recovered about $61 million so far.

Kabulbank doled out nearly half a billion dollars in unsecured, undocumented loans to a roster of Kabul's elite, including ministers, relatives of Karzai, a vice-president, and a powerful former warlord, anti-corruption officials say.

Much of the money was used to buy luxury real estate in Dubai.

(Additional reporting by Hamid Shalizi; Editing by Paul Tait)