VZCZCXRO3617
PP RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #0490/01 0400822
ZNR UUUUU ZZH
P 090822Z FEB 10 ZDK
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 5479
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHRC/USDA FAS WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0974

UNCLAS SECTION 01 OF 02 KABUL 000490 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AID/ASIA SCAA DRAY 
TREASURY FOR MNUGENT, JCASAL, AKIFAYAT 
USDA FOR FAS BREWER 
 
E.O. 12958: N/A 
TAGS: EAID EAGR ECON SNAR PGOV PINS AF
SUBJECT: CURRENT STATUS AND NEXT STEPS ON AGRICULTURE CREDIT 
 
KABUL 00000490  001.2 OF 002 
 
 
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SUMMARY 
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¶1.  (SBU) Members of the Embassy Interagency Agriculture Team met 
with the Ministry of Agriculture, Irrigation, and Livestock (MAIL) 
on February 3 to discuss the current status and next steps on 
addressing the agriculture credit constraints facing the small 
commercial farmer.  MAIL reiterated its commitment to agriculture 
credit and requested Embassy assistance to address the complex legal 
and policy issues involved with setting up a specialized national 
agriculture credit system.  MAIL reviewed the report and 
recommendations prepared by consultants, Drs. John Mellor and 
Muhammad Usman, and requested additional support to provide legal 
and banking experts to assist the Afghan Government (GIRoA), 
including the Ministry of Finance (MOF) and the Central Bank (Da 
Afghanistan Bank-DAB), in developing a detailed roadmap that clearly 
outlines the legal and policy issues that GIRoA must address and by 
what date, in order to have a sustainable agriculture credit 
institution up and running at a time to be determined by GIRoA.  In 
response to MAIL's request, Embassy interagency Agriculture Team, 
Treasury and State/Econ will provide banking and legal experts to 
assist MAIL, MOF and DAB develop the roadmap.  Additionally, Embassy 
is modifying existing programs to address the credit needs of the 
small commercial farmer while the new specialized agriculture credit 
institution is being established.  END SUMMARY. 
 
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MAIL FEEDBACK ON CONSULTANT REPORT 
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¶2.  (SBU) Senior MAIL representative, stressing that she was 
speaking on behalf of Agriculture Minister Rahimi, fully agreed with 
the concept of a specialized agriculture credit institution, but 
raised several concerns. 
 
--timeline: MAIL considers the timeline set forth in the AID-funded 
consultant report unrealistic, given the legal and policy 
complexities involved.  (NOTE: During his January visit to 
Afghanistan, Agriculture Secretary Tom Vilsack, while agreeing for 
the need to develop a specialized national agriculture credit 
institution, shared similar concerns with MAIL regarding the 
timeline and suggested instead that a "model" institution be 
established in one location first before proceeding to develop 
branches nationwide.) 
 
--senior staff: MAIL representative stated that Minister Rahimi is 
"adamant" that previous employees of the defunct Agriculture 
Development Bank of Afghanistan (ADBA) not be hired in senior 
positions within the new institution.  "No donor would buy into the 
consultants' recommended plan 'as is'", they stated. 
 
--budget/personnel: MAIL also expressed concern that the budget 
estimate was too low and that position descriptions of key employees 
lacked essential qualification criteria of the new institution. 
 
--other options:  MAIL also asked for further analysis of the 
various institutional options available for GIRoA to consider, 
rather than different options to implement one single type of 
institution. 
 
--"lessons learned:"  Stressing that MAIL supports the idea of a 
specialized national agriculture credit institution, they asked 
"what went wrong with the previous specialized agriculture credit 
institution-the defunct ADBA?" What lessons can be learned from that 
experience to ensure it does not happen again? 
 
--Analysis:  Lastly, MAIL saw insufficient verification to support 
some of the analyses provided.  Embassy Agriculture Team members 
responded that the credit demand analysis, requested by MAIL, should 
be complete by the end of April. 
 
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ROADMAP 
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¶3.  (SBU) MAIL requested Embassy support to provide a detailed 
roadmap or action plan that lists the specific legal and policy 
actions GIRoA (w/USG or other donor support) needs to undertake to 
set up a specialized agriculture credit institution.  These include: 
1) the steps GIRoA must take to approve the new institution; 2) 
structure and governance of the institution; 3) disposal of the 
assets of the defunct ADBA; 4) a review of the previous ADBA charter 
(from 1956) and by-laws to determine if they are appropriate for a 
new institution; 5) whether the new institution could operate as a 
"bank" without DAB issuance of a license to be a deposit-taking 
 
KABUL 00000490  002.2 OF 002 
 
 
institution; and 6) whether the creation of such an institution 
impacts any loan conditionality from the International Monetary Fund 
(IMF), World Bank, or Asian Development Bank (ADB).  (Note: In a 
February 4 meeting in Washington with USAID and Treasury, IMF 
economists urged caution about such a specialized agriculture credit 
institution, as described in the consultant report.  Specifically, 
the IMF prefers a more "systemic" approach to address credit needs 
in Afghanistan.  In their view, a specialized agriculture credit 
institution (and as described in the consultant report), is 
susceptible to high loan and institutional failure rates, widespread 
corruption, cronyism, inevitable state influence and creation of 
contingent liabilities for their governments.  These types of legal 
and policy concerns and a roadmap with a detailed timeline need to 
be addressed.  The current timeline, as provided in the consultant 
report, does not provide the level of detail requested by the 
Minister in his out-brief with the USAID consultants on January 20. 
 
 
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IMMEDIATE USG ASSISTANCE 
------------------------ 
 
¶4.  (SBU) USAID has engaged a senior banking specialist to respond 
to MAIL's questions.  Specialist will arrive in Kabul o/a February 8 
for a two-week period.  In coordination with the Embassy Agriculture 
Team, Treasury and other Embassy officers, he will assist GIRoA 
(MAIL, MOF, DAB) develop a detailed roadmap/action plan.  Additional 
banking and legal specialists are also available to provide 
short-term assistance on an as-needed basis to be determined by 
GIRoA.  Lastly, USAID has hired a long-term agriculture credit 
specialist, who will serve a full one-year tour in Kabul and will 
arrive to post o/a March 1. 
 
¶5.  (SBU) While our Mission staff address MAIL concerns and set up 
the specialized agricultural credit institution, in collaboration 
with its implementing partners we have devised a holistic plan to 
address the credit needs of the small commercial farmer in the 
near-term.  This plan includes increasing lending through existing 
credit unions, providing specialized voucher packages to small 
commercial farmers, and providing lines of credit to Afghan-led farm 
stores and agriculture depots that will then provide supplier credit 
directly to small commercial farmers.  Additionally, a new USG 
program will start in spring 2010 that, inter alia, will provide 
incentives to existing commercial banks to increase their lending to 
the agriculture sector.  Minister Rahimi, during the January 20 
out-brief of the consultant report, agreed with this approach to 
complement efforts to establish the new agriculture credit 
institution.  MAIL reiterated its support for this approach in the 
February 3 meeting. 
 
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NEXT STEPS 
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¶6.  (SBU) In response to the issues MAIL raised regarding the 
consultant report and its request for additional assistance, we have 
agreed to provide the legal and banking experts to develop an 
actionable roadmap for GIRoA and USG to move forward.  The roadmap 
will include a detailed timeline of actions to set up a specialized 
agriculture credit institution by a date to be determined by GIRoA. 
As part of this process, these experts will assist GIRoA in 
developing its own internal consensus on the path forward, which is 
not yet present.  Once consensus is reached within GIRoA, we can 
assist in gaining buy-in from IMF, World Bank, ADB and bilateral 
donors.  Upon completion and review of the senior banking 
specialist's roadmap, MAIL will determine what further assistance it 
will seek from the USG to develop the specialized national 
agriculture credit institution that MAIL and the USG agree is 
urgently necessary. 
 
EIKENBERRY