TAJIKISTAN: WHY MOUNTING CORRUPTION MATTERS

UNCLAS SECTION 01 OF 02 DUSHANBE 000705

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E.O. 12958: N/A
TAGS: PGOV ECON EINV KCOR SOCI TI
SUBJECT: TAJIKISTAN: WHY MOUNTING CORRUPTION MATTERS

REF: A) DUSHANBE 0576 B) DUSHANBE 0616 C) DUSHANBE 0626 D) 05 DUSHANBE 1845

DUSHANBE 00000705 001.2 OF 002


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1. (U) SUMMARY: Tajikistan's mounting corruption exacerbates
growing income inequalities and degrades the relatively high
human capital left from Soviet times. Pervasive corruption
limits local and international investment, distorts donor and
government development strategies, and undermines economic
development. Tajikistan could drop to a lower growth path,
despite the country's economic potential, if this problem is not
addressed soon. END SUMMARY.

PERVASIVE CORRUPTION COSTS INCREASING


2. (SBU) Corruption levels in Tajikistan continue to climb with
economic growth. Although there are no official corruption
statistics, anecdotal evidence and an upcoming corruption report
by a government think tank indicate the magnitude of the problem
(REFTELS A and B) is growing. The current bribe, for example,
for getting a railcar of goods through the standards process has
risen from $200 to $400. Getting a loved one out of prison can
run upwards of $1,000. Moreover, paying to get a job and even
paying for University grades and degrees are becoming engrained
in society, and there is constant pressure to make payments
years after getting domestic employment. The typical scenario
involves an uncle getting his nephew a state job; the nephew not
only owes his uncle, but then is responsible for permanently
providing perks to the rest of the uncle's family, his wife, his
wife's family, and others.

CORRUPTION DOESN'T TRICKLE DOWN


3. (U) Corruption exacerbates Tajikistan's growing income
stratification because the new wealth does not trickle down to
the poor. This hinders development of a middle class, which is
critical for fair and sustainable growth. The World Bank notes
that while the aggregate poverty level declined in Tajikistan by
18 percentage points between 1999 and 2003, the Gini index that
measures income inequalities has widened from .33 in 1999 to .36
in 2003. This is most notable in urban areas and Khatlon. In a
country with a GDP per capita of $310, this is extremely
worrisome. The vast majority of the country's remittances --
estimated at 50 percent of GDP from the 30 percent of its males
in migrant labor -- go towards poverty alleviation, and not
investment.


4. (SBU) The World Bank reports that the country's $2 billion
GDP is insufficient to sustain the capital stock inherited from
Soviet times. Even though most children still go to school,
real education levels have plummeted, especially for girls. In
an April 6 conversation with an international financial official
married to a Tajik woman, he told PolOff he was surprised to
learn when he returned to Dushanbe that many subjects -- such as
math -- are simply dropped from the curriculum when there are no
teachers. In a visit to a village an hour out of the northern
city of Isfara, PolOff met the local teacher responsible for
teaching all students in the village school; it was clear the
woman had just graduated from the village school herself.

DISCOURAGES LOCAL AND INTERNATIONAL INVESTMENT


5. (SBU) Tajikistan's increasing corruption limits local and
international investment. This fundamentally deters small and
medium-sized enterprise growth, which is an integral part of
sustainable economic development. Local businesses also do not
expand because of the unofficial costs of doing business and
because bribe costs keep escalating (REFTEL C). International
investments are facing similar predicaments (REFTEL D). One
international financial official believes the lack of local
investment opportunities accounts for Dushanbe's and Kulob's

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residential building boom. A number of Tajiks who have between
$50,000 and $500,000 see no place to invest it, so they put the
money in the one place where supposedly it cannot be taken away
from them: personal homes. This has resulted in a
non-productive housing bubble in which new housing prices have
no realistic correlation with income levels. An eye-popping
number of these new homes are veritable McMansions. [COMMENT:
Some new homes are much more than McMansions. The Embassy
Housing Board was recently shown a palatial new compound in
downtown Dushanbe. The owner pitched it as "perfect for the
U.S. Ambassador." The price -- $30,000 per month. The owner -
the Minister of Emergency Situations. END COMMENT]

SKEWS DEVELOPMENT STRATEGIES


6. (SBU) Mounting corruption distorts economic and social
development strategies. Accountability is a vital component of
designing effective programs to encourage equitable growth, but
the hidden nature of corruption complicates formulating
effective strategies. This impacts not only donor programs, but
also President Rahmonov's policies and may account for his push
for big infrastructure projects (easier to control the money)
rather than truly promoting small and medium-sized enterprise
growth. For example, if it is common to buy grades or
educational degrees, then employers have little incentive to
begin high-technology businesses and hire skilled local
employees. But, building large infrastructure construction
brings in foreign expertise and large (but temporary) cash flows
to the economy.


7. (SBU) COMMENT: Sooner or later there will be a public
backlash against corruption. Tajikistan is approaching a
crucial crossroads, with a relatively high level of human
capital and infrastructure from Soviet times that is rapidly
deteriorating. Mounting pervasive corruption threatens to
permanently undermine economic development and place the country
on a lower growth path, despite Tajikistan's economic potential.
Tajik leadership seems to recognize this danger, but has not
found a good strategy to deal with it. END COMMENT.

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