Fraud and mismanagement at Afghanistan's largest bank have resulted in potential losses of as much as $900 million -- three times previous estimates -- heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to U.S., European and Afghan officials.

The extent of these losses makes it clear that keeping the bank afloat -- something the government has said it is determined to do -- would require large infusions of cash from an already-strained budget.

Banking specialists, businessmen and government officials now fear that word of Kabul Bank's troubles could even prompt a run on solvent banks, destroying the country's emerging banking system and shaking the confidence of Western donors that already are questioning the level of their commitment to Afghanistan.

The scandal has severe political and security implications. Investigators and Afghan businessmen believe that much of the money has gone into the pockets of a small group of privileged and politically connected Afghans, preventing earlier scrutiny of the bank's dealings.

The spotlight on how political and economic interests in Afghanistan are intertwined threatens to further undermine President Hamid Karzai's government. The bank is also the prime conduit to pay Afghan security forces, leaving the U.S. military, which pays the salaries, looking for new banks to process the $800 million payroll.

As Afghan regulators struggle to find out where the money went, many officials and international monitors concede that the missing millions may never be recovered, raising questions of how the losses could be replaced to keep the bank from failing.

Afghan officials and businessmen have said the money was invested in a real estate bubble that has since burst in Dubai, as well as in dubious projects and donations to politicians in Afghanistan. Millions of dollars have yet to be traced, and some of the money seems to have gone to front companies or individuals and then disappeared.

The Afghan Central Bank and U.S. officials are conducting their own parallel investigations, but the problems are so serious that the International Monetary Fund has not yet renewed the assistance program to Afghanistan that expired in September, threatening an essential pillar of support to the government.

Many donor countries may have to delay aid to Afghanistan because of their own requirements that money go only to countries with IMF programs in good standing, Western diplomats said.

PAKISTANIS RALLY AGAINST AMERICAN

Hard-line Islamic leaders on Sunday rallied at least 15,000 people against an U.S. official arrested in the shooting deaths of two Pakistanis and warned the government not to cave in to U.S. pressure to release the man.

The protest in the eastern city of Lahore, where the shootings took place, came as the U.S. Embassy once again insisted that the American has diplomatic immunity and was being detained illegally by Pakistan. But Pakistan has refused to budge, saying the matter must be decided by the courts.

Washington has said the American, who has not been named, acted in self-defense when he shot two armed men who approached his car Thursday. But many questions have been left unanswered, including exactly what the American did at the U.S. Embassy and why he was carrying a gun.

NEWS SERVICES