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Swiss-based trust holds second meeting to discuss plans for Afghan funds -trustee

By Charlotte Greenfield

KABUL (Reuters) - The board of the Swiss-based trust fund managing some $3.5 billion in frozen Afghan central bank assets met for a second time last month, one of its trustees said, and discussed options for disbursing funds in line with achieving monetary stability.

The frozen central bank reserves were transferred from Washington into the "Fund for the Afghan People" last year where U.S. officials say it will be shielded from the Taliban. The latter has condemned the transfer, calling it a violation of international norms.

Trustee Shah Mehrabi, a U.S. academic who also remains on the Afghan central bank's Supreme Council, said a meeting of the four trustees was held virtually on Feb. 16.

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"The issue of disbursements of funds and the options for that was discussed," Mehrabi told Reuters.

"The idea clearly here is the necessary steps to disburse funds and potential options for achieving monetary stability."

Mehrabi said he believed the funds should only be used for achieving monetary stability and reducing volatility in Afghanistan's exchange rate. He said he was against the funds being used to make payments for electricity, paying off Afghanistan's loans at multilateral institutions and other payments the state should be responsible for.

He said one way to achieve price stability, if needed in future, was to engage in foreign exchange auctions to sell dollars and take some of the Afghani currency out of circulation, which would help keep inflation in check.

Economists, including Mehrabi, have noted that Afghanistan's currency has remained relatively stable in recent months - after an initial depreciation when the Taliban took over in 2021 - partly due to large inflows of U.S. dollars shipped to Afghanistan last year by the United Nations to carry out humanitarian operations.

Mehrabi said the board had also agreed at the meeting to seek external funding to cover the fund's operational and administrative expenses so that the costs of running it would not eat into the assets.

He said the funds transferred last year by the United States had included an extra $36 million in interest earned since they were frozen in 2021. Since the transfer in September, they had earned an additional $34 million in interest as of the end of January.

(Reporting by Charlotte Greenfield in Kabul; Editing by Raju Gopalakrishnan)