WASHINGTON, 26 September 2004 — Afghanistan must break out of its vicious cycle of insecurity, informal economy and drugs to end poverty and violence gripping the country for three decades, the World Bank said in a report Friday.

It was the bank’s first economic report on Afghanistan in a quarter century and came ahead of landmark presidential elections Oct. 9.

The World Bank said up to 90 percent of Afghanistan was an informal economy, denying the government of much needed taxes and other revenue to develop the country.

Furthermore, most donor funding do not cover cost of crucial government administrative functions.

The report said the country’s future prospects “depend on whether the political leadership can free it from a vicious cycle in which a largely informal economy, the opium trade, and violence reinforce each other.”

“This has hindered state-building activities, and undermined development efforts,” it said.

William Byrd, the bank’s senior economic adviser, said addressing the key problems of insecurity, state building, reconstruction, and drugs in a timely, coordinated manner was “absolutely pivotal” to determining which path the country would follow in coming years.

The World Bank re-entered Afghanistan in 2001 after shunning work there during the more than two decades of conflict there.

Byrd, who has spent the last three years working on Afghanistan issues, said the Afghanistan economy was recovering “but 80 to 90 percent of it, including the opium trade, was informal.”

This meant entrepreneurs cannot become sizable registered businesses, and the government cannot collect revenue, he said. “In turn, a weak government with insufficient funds and technical expertise cannot provide the economy with the support it needs to grow, nor can it provide the people with the security from violence and the social services they need to thrive,” Byrd said.

Poppy cultivation in Afghanistan, the world’s leading supplier of illicit opium, morphine and heroin, is expected to jump by 40 percent this year, according to State Department. US-backed Afghan President Hamid Karzai, front-runner among 18 candidates in the presidential race, had repeatedly listed drug trafficking and corruption as among the top threats to his landlocked country’s long-term security and future.

The World Bank report also pointed to the continuing power of warlords and unchecked violence as undermining efforts to develop a strong central government, citing insufficient international security assistance outside Kabul.

The opium economy is described in the report as the lynchpin of the vicious cycle - “with adverse effects on security, political normalization, regional relations, and state building.” The report also underlined the need for development programs focusing particularly on women.

Meanwhile, World Bank President James Wolfensohn said Friday that leaders of 20 key economies, including China, should create a formal structure for consulting on economic issues on the model of the Group of Eight.

Wolfensohn called for a more important role for the so-called G-20 nations, which includes the G-8 along with China, India and other major developing nations.

“I don’t think there is anything wrong with G-8,” he told reporters when asked about China’s invitation to participate in discussions next week with the Group of Seven economic powers.

“But there is a need for an additional instrument, a need to have a G-20 with China, India, South Africa and representatives from Islamic countries.”