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Lessons Learned from the Soviet Experience in ... - Cornwallis Group

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MINKOV AND SMOLYNEC: 3-D SOVIET STYLE 191<strong>in</strong>tegration of <strong>the</strong> <strong>Soviet</strong> and Afghan economies. Before PDPA came to power <strong>in</strong> 1978,Afghan-<strong>Soviet</strong> bilateral trade, although significant, represented only around 30% ofAfghanistan’s overall <strong>in</strong>ternational trade. After <strong>the</strong> 1978 revolution, <strong>the</strong> share of exchangewith <strong>the</strong> <strong>Soviet</strong> Union jumped to about 60% and 70% by 1982 (Graph 14). Most likely <strong>the</strong>trend cont<strong>in</strong>ued <strong>in</strong> <strong>the</strong> subsequent years.Despite obvious achievements <strong>in</strong> pursu<strong>in</strong>g <strong>the</strong> established economic goals, <strong>the</strong> PDPAregimes could not solve <strong>the</strong> fundamental challenge to Afghan economy – <strong>the</strong> reliance onforeign aid. From 1978 to 1988 expenditures exceeded revenue by a big marg<strong>in</strong>. The effortsto build up DRA army capabilities and <strong>the</strong> national reconciliation process made stateexpenditures rise exponentially. In 1986, all domestic revenues covered 48% of expendituresand by 1988, only 30% (Graph 15). Despite <strong>the</strong> <strong>in</strong>crease of foreign aid <strong>from</strong> 1980 to 1988 by380%, <strong>the</strong> deficit <strong>in</strong> 1988 could not be covered by foreign aid anymore. The government<strong>in</strong>creas<strong>in</strong>gly resorted to <strong>in</strong>ternal borrow<strong>in</strong>g which <strong>in</strong>creased more than 10 fold <strong>from</strong> 1983 to1988 (Rub<strong>in</strong>, 1995, 113). The deficit of currency associated with <strong>the</strong> <strong>in</strong>creased spend<strong>in</strong>gresulted <strong>in</strong> <strong>the</strong> pr<strong>in</strong>t<strong>in</strong>g of money and <strong>in</strong>flation. Official consumer price <strong>in</strong>flation was reportedas be<strong>in</strong>g 30% - 40% per year <strong>in</strong> 1987-89; however, on <strong>the</strong> open market food prices <strong>in</strong>creased500% to 1,000% (Rub<strong>in</strong>, 1995, 164). So much money was required for daily needs thatbanknotes were actually weighed ra<strong>the</strong>r than counted.140,000120,000millions of afghanismillions of afghanis100,00080,00060,00040,00020,00001977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988State expenditureTotal domestic revenue and foreign aidGraph 15: State Expenditure Compared to Domestic Revenue and Foreign Aid(based on data <strong>from</strong>: Rub<strong>in</strong>, 1995, Table 5.1, 113).After <strong>the</strong> <strong>Soviet</strong> withdrawal and <strong>the</strong> collapse of <strong>the</strong> jo<strong>in</strong>t venture projects, <strong>the</strong> smallrevenue <strong>from</strong> taxes could only be supplemented by foreign aid. In 1988, 75% of <strong>the</strong> state’srevenues were derived <strong>from</strong> sales of natural gas and f<strong>in</strong>ancial aid and only 25% <strong>from</strong> directand <strong>in</strong>direct taxes (Giustozzi, 234). After <strong>the</strong> collapse of <strong>the</strong> <strong>Soviet</strong> Union, Russian presidentBoris Yelts<strong>in</strong> halted aid to Najibullah’s government at <strong>the</strong> end of 1991. The lack of basicresources decapitated <strong>the</strong> seem<strong>in</strong>gly huge state military mach<strong>in</strong>e. The economic dependenceof <strong>the</strong> population and some commanders on <strong>the</strong> redistribution of <strong>Soviet</strong> aid disappeared and<strong>the</strong> latter promptly turned aga<strong>in</strong>st <strong>the</strong> regime. The collapse of <strong>the</strong> pro-Moscow regime <strong>in</strong>Afghanistan soon after that <strong>in</strong>dicates that foreign aid was a crucial factor <strong>in</strong> <strong>the</strong> overallstability of <strong>the</strong> regime.

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