NCJ Number
224687
Date Published
October 2008
Length
64 pages
Annotation
In the face of negative media reports about opium-based credit in Afghanistan and its effect on household debt and expansion of opium poppy cultivation, this report argues that the key issue is not how to reduce opium-related debt and related credit, but rather what the cultivation of opium poppy says about the need for and the role of credit in rural Afghanistan.
Abstract
The empirical literature on opium-based credit identifies the effect of the Taliban ban on opium cultivation and the subsequent rise in price in 2001. This was critical in creating high levels of opium-related debt at that time and in specific opium-cultivating Provinces. Since then, however, evidence shows a decline in opium-based credit and opium-related debt, particularly in those Provinces that expanded into opium poppy cultivation after 2001--the evidence points toward opium poppy cultivation being more debt-relieving than debt-creating. This paper also challenges the assumption that the costs of opium-based credit are high. Opium prices apparently show greater price volatility than other commodities. In addition, it cannot be assumed that credit relations around opium poppy are different from other commodities; advances against future crop harvest have long been practiced as one of many forms of informal credit. This paper concludes that the role of informal credit, including opium-based credit, has been to smooth consumption. Further, the potential for reducing the costs of informal credit is limited. What drives the high costs of informal credit associated with opium is the context of risk and insecurity; this is what must be changed. Social inequalities and a seasonal agricultural economy should be recognized as the underlying factors in informal credit. Removing the opium economy does not resolve these factors. What is required is efforts to address the structural determinants of inequalities that produce poverty. 122 notes and 33 references