Abstract The opium problem Reducing opium production is one of the greatest challenges facing Afghanistan. Opium is central to the macroeconomy, contributing one third of GDP and significant support for aggregate demand and the balance of payments. In the rural economy, opium is a key livelihoods coping strategy for as many as 350,000 farm families, most of them poor. In the area of security, opium is fuelling warlordism and terrorism, and in governance the illegal economy is capturing or undermining state building efforts at all levels. Government strategy Government’s strategy to reduce and ultimately eliminate opium from the Afghan economy comprises essentially three elements. The first is to improve governance and the rule of law, strengthening public institutions and mechanisms to control drugs, together with the development of responsible governance structures and the “social contract” at all levels from the community up. The second is to raise the general level of economic activity and services, improving living standards and providing social protection. The third is to emphasize in development programs specific components that can have a significant impact on farmer behavior, with a focus on poorer farmers, laborers, and more vulnerable areas. World Bank approach With this background, the World Bank’s working approach to the opium problem is:
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