TAJIKISTAN - PRESIDENT RAHMON LAUNCHES INVESTMENT COUNCIL

UNCLAS SECTION 01 OF 02 DUSHANBE 001075 SIPDIS SENSITIVE DEPARTMENT FOR SCA/CEN E.O. 12958: N/A TAGS: ECON EAID EINV PGOV PREL USTR TI SUBJECT: TAJIKISTAN - PRESIDENT RAHMON LAUNCHES INVESTMENT COUNCIL ¶1. (U) This message is sensitive but unclassified. Please protect accordingly. ¶2. (SBU) Summary: President Rahmon chaired the first ever meeting of the Investment Council on July 31. While much of the meeting was dedicated to preliminary organizational matters, the President expounded on several topics - not necessarily related to improving the investment environment. However, for this new body to represent something more than window-dressing, it must tackle real issues that result in positive change to the business environment. Only then will Tajikistan begin to attract the foreign investment the Tajiks say they desire, and stimulate private sector development. End Summary. ¶3. (U) The Investment Council, an initiative of the European Bank for Reconstruction and Development, includes USAID, the European Bank for Reconstruction and Development, Tethys Petroleum, the National Association of Small and Medium-sized Enterprises, President Rahmon, Prime Minister Akil Akilov, Chairman of the State Committee on Investments Farrukh Hamraliev, and Mufarah Muhabbatov, General Director of a local souvenir producer. USAID served as the representative of bilateral donors (and based on its current Business Environment Improvement Project implemented through Pragma),while the European Bank for Reconstruction and Development represented multilateral donors. BE VERY VERY NICE TO THE PRESIDENT ¶4. (SBU) Although the launch of the Investment Council was more than a year in the making, the European Bank for Reconstruction and Development gave just three days advance notice of the first meeting, leaving little time to gather the Donor Coordination Council to discuss approaches and messages to the Government of Tajikistan from the donor community. On July 29 several non-Tajik Government members of the Council held an advance meeting to discuss procedures and agenda of the first Investment Council meeting. Djoomart Otorbaev, the European Bank for Reconstruction and Development Senior Adviser on Investment Climate for Enterprises led this preliminary meeting. Mr. Otorbaev, the former Deputy Prime Minister in Kyrgyzstan, has spearheaded this effort in several countries in addition to Tajikistan. Mr. Otorbaev told the other members of the Investment Council present that they must create a congenial, open atmosphere to keep the President engaged. They were advised not to raise any politically sensitive or controversial topics. The President's opening and closing speeches were already prepared, and Council members might have three minutes to say something. ¶5. (SBU) Mr. Otorbaev suggested the USAID representative tell the President how pleased the donors were to work with him on improving the business environment and investment opportunities in Tajikistan. When the USAID representatives suggested it would be more useful to raise issues such as the tax code or the rule of law, Mr. Otorbaev responded that it would probably be four to five years before those subjects could start to be addressed. The focus was to be on small realistic actions aimed at achieving some results quickly. ... CAUSE HE'S FEELING VERY TIRED ¶6. (SBU) President Rahmon, appearing tired and somewhat disengaged, began the Investment Council meeting with introductory remarks on the need to increase business representatives in the country. The representative of the European Bank for Reconstruction and Qrepresentative of the European Bank for Reconstruction and Development, Masaru Honma, Director for Central Asia, as well as the Chairman of the State Committee on Investments made brief remarks on the investment climate and the utility of the Investment Council. Honma expressed his hope that the Investment Council would be a forum for a frank exchange of views, and approved of the recent Government decision to institute a two-year moratorium on inspections of small and medium-sized enterprises. Hamraliev stated that political and macroeconomic stability has been achieved and that the private sector would be the engine for economic growth. He continued that the economy in Tajikistan was open and would continue to become more integrated with the international business community, particularly through WTO accession. While the investment climate was improving and the number of investors was increasing, it still was not enough. DAMN FOREIGNERS! ¶7. (SBU) For the first hour, Rahmon appeared to want to just get the meeting over with. However, he eventually came alive, finally speaking for over an hour, jumping from one topic to another. Rahmon complained about the lack of investment in the cotton sector and that the Government had to step up with 120 million somoni (approximately $40M) for cotton farmers. He also complained about DUSHANBE 00001075 002 OF 002 what he considered conflicting messages the international financial institutions sent the country, which he said had caused confusion. He railed against Uzbekistan, saying they "closed the door this year, not even allowing humanitarian aid in." Rahmon said "Tajikistan is one of the most backward countries, and other similar countries have received debt forgiveness" (He did not mention the latest IMF misreporting scandal, under which Tajikistan became the first country known to have received IMF debt relief under false pretenses). Rahmon added that "I don't trust journalists, and the internet less so. Most journalists work for intelligence services." ¶8. (SBU) Rahmon raised the case of an international company registered in Tajikistan and doing business in Isfara, which was caught trafficking narcotics. "Tajikistan has a lot of cheaters and criminals coming. We must take action against them, but then others say that Tajikistan is not favorable to business." Rahmon also talked about tax evaders and how Tajikistan needed to protect itself. On corruption, he admitted it was a problem particularly among local officials, but then tried to rationalize it away by saying that corruption was a problem throughout the world. He finished with comments on how Tajikistan could help with Afghanistan's recovery and development, especially in the areas of energy and border trade. He contrasted these prospects with Uzbekistan's obstruction of development in Tajikistan, saying that Tajikistan needed transportation alternatives that avoided Uzbekistan. ¶9. (SBU) Comment: Despite the President's demonstration of his suspicion of foreign involvement in Tajikistan, the Investment Council needs to move quickly beyond pleasantries and deal with pressing issues that hinder private sector development and foreign investment. If the Investment Council can achieve some initial successes that lead to positive reactions and commentary from business and donor leaders, it may gain the legitimacy and momentum that will allow it to tackle other obstacles. However, if the Investment Council fails to press an agenda of real economic reform, it may lose Rahmon's interest and die a quiet death. With the agenda for the next quarterly meeting focused on improving the regulatory environment, the Investment Council could achieve gains in simplifying the registration of legal entities, such as by promotion of "one stop" business licensing. End Comment.