April 5 (Bloomberg) -- Afghanistan's is facing a ``daunting'' task of developing its state institutions and creating fiscal stability, Jean Arnault, the United Nations special envoy, told a donor conference in Kabul.

The international community is trying to bridge the gap between immediate assistance to help the country recover from 25 years of conflict and creating a state that can ``perform effectively and responsibly,'' Arnault said yesterday on the opening day of the Afghanistan Development Forum, according to the UN's Web site.

``Because of the thorough destruction to which Afghan institutions were subjected during the war and the destitution prevailing in much of the country, this gap is particularly daunting in Afghanistan,'' Arnault said.

The three-day donor forum that includes representatives from 40 countries is the first since Hamid Karzai won October's presidential election. Karzai's government relies on international donations for 93 percent of its development budget. The Afghan government estimates it needs $27.5 billion over the next seven years to help rebuild.

A number of essential peace-building tasks have hardly begun, Arnault said. They include land settlement claims as the country lacks a registry, restoring property rights and ensuring the rule of law, he said.

Providing genuine security and dismantling local militias are among the government's immediate priorities, Arnault said.

Fighting Corruption

The Afghan government wants responsibility for a larger portion of the development budget, Agence France-Presse cited Ishaq Nadiri, Karzai's economic adviser, as saying yesterday.

The lion's share ``goes outside our government budget,'' Nadiri said. ``Given the responsibilities of the government to the people, we should re-look at this issue.''

Karzai, 47, told the conference that money given to Afghanistan isn't reaching the countryside, AFP reported. Government corruption and private companies setting themselves up as charities to escape paying taxes are a problem, he said.

``We must make sure that corruption in administration, corruption in the private sector and corruption in non- governmental organizations is handled in order to respect the donors' taxpayers' money,'' Karzai said, according to AFP.

Afghanistan will take another step toward democracy when parliamentary and local elections are held in September. The polls face a threat from armed groups still operating in the country, United Nations Secretary General Kofi Annan said in a report last month to the Security Council.

The UN Assistance Mission in Afghanistan and the Afghan authorities are working with international security agencies to identify an estimated 2,000 illegal armed groups operating in the country, Ariane Quentier, spokeswoman for the Assistance Mission, said at a briefing in Kabul on April 3.

Disarmament Project

The Afghan government may begin a disarmament project in the Badakhshan and Kandahar regions, the areas estimated to have the largest number of illegal groups, Quentier said, according to the Mission's Web site.

``In terms of the category of militia, the two main problematic types are those which could pose a serious threat in the framework of the holding of the elections, but also those which could be linked with the drug trade,'' she said.

Afghanistan has been the source of three-quarters of the world's heroin, the UN has said. Cultivation of opium poppies used to make heroin has fallen in at least 16 of the country's 31 provinces, the UN said last month.

Afghanistan's national army, created since 2001, has 22,000 soldiers and officers and the national police force has 53,400 trained personnel and will be expanded to 62,000 members, Annan said in his report. The U.S. has 18,000 troops in Afghanistan and NATO has 9,000 in the UN-authorized International Security Assistance Force.

To contact the reporters on this story: Paul Tighe in Sydney at ptighe@bloomberg.net;

Last Updated: April 4, 2005 20:40 EDT