Chapter 3. The Economy

AFGHANISTAN'S ECONOMY SUFFERED markedly after the April 1978 coup d'etat and the subsequent direct Soviet intervention in December 1979. The already relatively slow pace of economic development was halted as agricultural and industrial production declined and trade was disrupted. Per capita gross national product fell from an already low Af7,370 in 1978 to Af6,852 in 1982. In 1981 the gross national product was Af154.3 billion 37 percent greater than the 1976 figure of Af115 billion. Inflation, however, was far greater than this, and therefore in real terms, i.e., discounted for inflation, economic output was depressed. As the war and its effects extended throughout the country in the early 1980s, two separate economies could be seen emerging. The Kabul government and its Soviet backers held control of the urban areas with their financial and industrial facilities. These sectors were becoming increasingly dependent on the Soviet Union as the continued fighting cut their links with the rural areas not subject to government control. The countryside was reverting to a subsistence agriculture economy unaffected by government decrees and regulations emanating from Kabul.

The tradition of isolated and autonomous agricultural communities was already well established in Afghanistan because of the country's imposing geography. The fragmentation of the economy was a serious weakness in the country's efforts at development. In 1985, however, that fragmentation was a major strength to the resistance in the face of the bitter war dominating most of the country. A better developed economy composed of more interdependent sectors would have suffered proportionally far worse than has the existing economy.
The low level of internal trade and integration among the different regions of Afghanistan had been a target of Afghan national planners after World War II. The first development plans after the war focused on building infrastructure, such as roads, power stations, and banks. These moves to modernize and boost the country's output allowed Afghanistan to achieve a slow but steady rate of growth in the two decades before 1978. Although many communities remained virtually unaffected, most regions that had formerly relied solely on barter trade became commercialized, and internal trade grew rapidly. Afghanistan's development drive was spurred by large foreign aid receipts, but poor domestic resource mobilization slowed economic progress. Large amounts of arable land remained uncultivated, and the nation's mineral resources were marginally exploited, with the exception of natural gas. Skilled labor was in constantly short supply despite underemployment in the countryside. The budget remained dependent on foreign aid, and domestic revenue sources went untapped.

In spite of these obstacles, Afghanistan had achieved some notable progress by 1978. The country's solid internal transport infrastructure handled ever larger volumes of goods, at least between the cities. The economy remained dependent on the primitive agriculture sector, but fledgling industries such as textiles, cement, and electric power recorded steady production increases. The trade balance showed repeated surpluses, foreign exchange reserves grew, and the currency, the afghani, appreciated in value. Afghanistan remained one of the world's poorest countries by any standard, but there was tangible progress.

The continued fighting after the April Revolution set back the progress achieved, although it was difficult to know precisely how much. Economic data, always suspect in Afghanistan, were scarce in 1985 and of dubious reliability. Nonetheless, a dramatic decline in agricultural output was observed after the revolution, and this made for an ominous outlook for millions of Afghan peasants. Some industrial production, dependent on the agricultural sector for its raw materials, also declined. Only sectors deemed essential by the Soviet Union, such as natural gas, maintained their levels of production. Foreign aid from the West ceased. These factors combined to make the new regime heavily dependent on the Soviet Union for imports of food, manufactures, and capital and caused it to be subject to what many observers felt was the economic integration into the Soviet economy.

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