TAJIKISTAN - SCENESETTER FOR JUNE 16-19 VISIT OF

1. (U) Embassy Dushanbe looks forward to the upcoming visit
of DAS George Krol. Following is a brief overview of the
current situation in Tajikistan and our thoughts on the key
issues DAS Krol will confront during his visit.

Political Overview - Cracks in the Facade


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2. (C) Political development in Tajikistan is marked by
leadership stagnation, and growing discontent among the
general populace. Rahmon continues efforts to consolidate
his hold over the Government by ensuring that individuals
from his home district hold most of the top ministerial, law
enforcement, diplomatic, and revenue-related positions.
Since the President's re-election in November 2006, most
members of the opposition have been removed from positions of
authority, reneging on one of the key provisions ending the
civil war. Rahmon and his appointees continue to argue that
stability is paramount, and that reform is a slow process.
They view democratic reforms as destabilizing. Government
officials are committed to protecting their personal
financial and political interests.



3. (C) The leadership faces long-term challenges.
Tajikistanis under the age of 18 (over half the population)
are more religious than older generations, and their views
are less swayed by the civil war experience. Although
religious extremism is not currently a major threat,
worsening economic conditions and government restrictions on
religious practices are alienating some of the country's
young people, and threaten long-term stability.



4. (C) Cracks are beginning to show in the Government's
facade of control. In February a senior national-level
police officer was killed in Garm while trying to arrest a
local police official there. The local officer remains in
his position, charged with no crime, and non-uniformed armed
men, apparently his supporters, maintain a strong street
presence in Garm. In early May reports circulated that the
President's son Rustam shot his uncle, Presidential
brother-in-law (and banker) Hassan Asadullozoda, in a dispute
over control of businesses. While Hassan has since been seen
alive, there has been no official word on what happened,
Rustam has disappeared from public view, and rumors continue
to swirl in the Tajikistani media. In Kulyob in late May
security forces attempting to arrest an alleged drug
smuggling ringleader, found themselves in an hours-long
firefight in the center of the city. Three people were
killed, the ringleader was eventually captured, and reports
circulated that this was another effort to weaken a rival
faction to the President's.

A Skewed Economy


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5. (C) The Government relies heavily on revenue from aluminum
producer Tajik Aluminum Company (Talco). State-owned and
non-transparent, Talco also serves as the President's cash
cow; analyses in international press of production versus
revenues suggest that a large part of Talco's revenue is
diverted to ends unknown. Talco in turn survives on
below-market price electricity from state-owned Barki Tojik.
Barki Tojik does not get enough revenue to keep its
infrastructure from deteriorating and failing. Talco has
also been at the center of one of the most expensive legal
cases in UK history; Tajikistan has reportedly some $120-150
Qcases in UK history; Tajikistan has reportedly some $120-150
million on legal fees in UK courts over the past three years
to pursue claims against the previous management. This
equals about five percent of Tajikistan's 2005 GDP, and the
case goes on. Talco favorably settled a $30 million claim
from U.S. company Gerald Metals in 2007.



6. (C) The agricultural sector is dominated by cotton
production. Due to government manipulation, cotton growing
in Tajikistan is not currently commercially viable, and is
kept artificially alive to the benefit of a few
politically-connected investors. With government-backed
loans to local banks, the local banks have re-loaned money to
farmers for cotton inputs, used local officials to coerce
farmers to plant cotton, paid them below market rates for
cotton crops, and then kept the profits generated by this
unfair, semi-feudal system. Farmers go further into debt,

and agricultural modernization lags. USAID agricultural and
land reform programs are designed to offer Tajik farmers
viable alternative livelihoods in rural areas.



7. (C) Government officials have failed to implement an
effective or coherent macroeconomic policy. Inflation in
2007 reached 18%, and prices for basic foodstuffs increased
50-100%. With few legitimate business opportunities in
Tajikistan, and deteriorating education and other public
services, much of the population relies on remittances from
Tajikistanis working abroad. Anecdotal evidence suggests
that the percentage of Tajikistanis who move abroad to seek
permanent or temporary work ) as much as 40 percent of the
working population ) is increasing. Tajikistani social
indicators are going down, health care and educational
systems are degenerating, and young Tajikistanis are arguably
more poorly prepared for life than those who grew up under
the Soviet Union. The business climate is not improving, and
local and foreign observers have remarked to us that members
of the President's family have reached surprisingly far down
into the economy, to the level of grocery stores, to grasp a
share of business revenues.



8. (C) Government spending priorities show a lack of concern
for the common welfare. The Government continues to spend
tens of millions of dollars on massive presidential palaces
and dachas (funded by state-owned enterprises rather than
governmental budget resources), and insists it will be able
to spend $100m per year to build the Rogun hydroelectric dam.
In May, the Mayor of Dushanbe called on all businesses in
the capital to surrender a month's salary of every employee
to contribute to Rogun. The potential size of this
confiscation would be $10 million, paltry in comparison to
the project's needs, and the Mayor seems to have backed down
after angry public and private reactions. A functionary of
the President's political party also suggested that thousands
of party youth could be organized to provide free labor for
the Rogun project. Both proposals show the tin ear of
members of the political/economic elite, and their Soviet
style willingness to blithely sacrifice common people for the
sake of "national prestige."



9. (C) Another worrisome trend we must deal with is the
Government's declining competence. The result of corruption,
nepotism, general mismanagement, brain drain to other
countries and declining educational standards, Tajikistan's
government has fewer specialists at middle and senior levels,
and a decreasing capacity to carry out even basic functions
of coordination.

Food Crisis Will Worsen


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10. (C) Over the past winter much of rural Tajikistan has
faced a growing food shortage, as the unusually harsh winter
and resulting damage to crops and harvests, combined with
mounting debts and rapidly increasing food prices, has forced
rural families to sell tools and livestock to survive.
Unusually severe winter weather, combined with government
hesitation on settling a new land-ownership law, delayed
sowing of the next cotton crop, while long-standing policy
prevented the planting of other crops. The result is that
Tajikistan next year will face a greatly reduced cotton crop,
resulting loss in farm incomes, and likely more severe
economic disruptions in rural areas and the banking sector.
Qeconomic disruptions in rural areas and the banking sector.
Inputs and credit for other crops are limited, so the next
agricultural season looks bleak for Tajikistan. Tajikistan
is highly dependent on imports for its food supply and is
vulnerable to the ongoing worldwide food price increases. We
expect food shortages to worsen. This is a very bad time for
Food for Peace to stop functioning in Tajikistan. As the
program ends, and the NGO network running it dismantles, we
will lose not only the significant developmental impact, but
also the infrastructure for distributing emergency
humanitarian assistance.

Business Climate


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11. (C) Most international investors do not view Tajikistan
as a viable place to do business. American energy company
AES closed its Tajikistan office in January, because of lack
of progress on regional energy integration plans. The owner
of an EBRD-financed supermarket chain, Orima, recently

received an eight-and-a-half year prison sentence and
confiscation of assets, in what most believe was a move by
someone close to the President to seize his business. Other
would-be investors, large and small, find themselves stymied
by corruption at all levels. What foreign investment there
is, is state-sponsored or directed largely from Iran, China,
and Russia. Entities such as the Committee on Investments
and State Property are ineffective, and the Agency to Fight
Corruption and Economic Crimes appears to be merely a tool to
attack business rivals of government leaders. A local AmCham
and the Washington-based U.S. Tajik Business Council have
just opened and may serve to advocate for improved business
practices; but their memberships are extremely limited.

Areas of Cooperation


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12. (C) Bridge: Use of the Tajikistan-Afghanistan bridge at
Nizhny Pyanj is growing. About 200 trucks a day now cross
the bridge going north. Obstacles to full use of the bridge
remain; there are still no provisions for pedestrian traffic,
and it remains difficult for Afghans to obtain a Tajikistani
visa, both because of bureaucratic delays and demands for
bribes from Tajikistani consular officials. The inspection
facilities at the Tajikistan end of the bridge are almost
complete, but the Government still has not decided whether
the Customs Agency or the Border Guards will control the
site. U.S. Customs advisors plan to spend time mentoring
Tajikistani counterparts at the bridge later this year.



13. (C) Narcotics: Cooperation on narcotics continues to be a
relative bright spot. Unfortunately however, while
Tajikistan,s law enforcement and security services seize
more narcotics than other central Asian states, they are not
willing to take on the arrest and prosecution of narcotics
smuggling ring leaders, some of whom are politically
well-connected. An example of this unwillingness, late last
year when the Interior Ministry General in charge of
counternarcotics tried to prosecute a State Security officer
(and distant relative of the President) for smuggling heroin
in an official car, the General himself was instead
unceremoniously fired.



14. (C) Security Cooperation: Security Cooperation remains a
strong part of our relationship, as we pursue shared
interests in building stability in Afghanistan. The
Tajikistani Ministry of Defense is opening up to cooperation
with Afghanistan. The Tajikistani Military Institute intends
to begin training 30 officers from Afghanistan in September


2008. This seems to be a sincere effort to assist in the
process of building stability in Afghanistan, and stands in
sharp contrast to Tajikistan's Border Guards' refusal to
allow joint training with Afghan counterparts. Tajikistan
has also accepted the Global Peacekeeping Operations
Initiative, funded at $1.5 million, with additional follow-on
funding of another million, and formed an interagency
commission to explore the standup of a peace keeping unit.
The Commission will meet with U.S. DoD representatives in
late June to formulate next steps.



15. (C) Regional Integration: Efforts to spark regional
integration between Tajikistan and Afghanistan, and more
broadly between Central and South Asia, have seen some
successes; but progress is slow. Trade across the U.S.-built
bridge has expanded. Tajikistan will soon sign a commercial
Qbridge has expanded. Tajikistan will soon sign a commercial
power purchase agreement with Afghanistan, which will pave
the way for sales of seasonal hydroelectricity to the Afghan
grid starting in spring 2010. Tajikistan's relations with
Uzbekistan are generally poor. Distrust between the two
countries is based in part of the presidents' personalities
and on more substantive regional issues such as management of
water resources. Tajikistan will host the Shanghai
Cooperation Summit meeting in August. After months of
confrontation with the OSCE over extension of its mandate in
Tajikistan, the government has approved a revised mandate
that allows for programming in all three dimensions,
including human rights and democracy work. The new mandate
will be considered for approval later this month in Vienna.
The U.S. mission will support it and we expect the mandate
will receive approval.

Key Issues for Your Visit: The IMF, Business Climate


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16. (C) IMF/Assistance: In the wake of the misreporting
scandal with the IMF, in which the Central Bank obtained new
loans and debt relief under false pretenses, relations with
international financial institutions have reached a new low.
The Government, seeking another IMF bailout, has agreed to an
audit of the Central Bank. However, the Tajikistan Central
Bank Chairman has told us the bank does not have the funds to
pay back $47 million it owes to the IMF in September as part
of its settlement of the incident, calling into question
Tajikistan's long term credit-worthiness.



17. (C) The cotton sector was at the center of the
misreporting incident, for the Central Bank guaranteed loans
from foreign banks to cotton sector investors - and hid those
guarantees from the IMF in order to qualify for debt relief.
The Central Bank Chairman who organized the misreporting,
Murodali Alimardon, is now Deputy Prime Minister for
Agriculture (a sector in which he is a major investor), and
reportedly continues to coerce farmers to plant cotton, and
banks to loan money to farmers only for cotton, despite the
President's declarations of "freedom to farm." A banking
crisis is looming; the Government has reportedly given banks
money which they must loan to cotton farmers - but the banks
expect up to 90% of these loans to go bad. Alimardon has
also suggested to donors that the freedom to farm decree be
suspended in areas where members of the President's family
and other politically connected persons are major cotton
investors. Donors roundly rejected this idea.



18. (C) Alimardon's transfer to Deputy Prime Minister and
ongoing lavish spending on prestige projects have produced a
sense of fatigue among donors, many of whom are now more
cautious in responding to government requests for large
amounts of aid. The President's chief economic adviser, in
turn, has repeatedly expressed anger at what he perceives as
our "failure" to support Tajikistan in the IMF, and our
criticism of the business climate. You will receive repeated
pleas for more investment and financial assistance. Our
response to these pleas has been to tell the Tajikistanis
that investment is a business decision, and that private
investors need to see a friendlier government, less
corruption, and fewer administrative barriers before they
will come to Tajikistan.



19. (C) Withdrawal of National Democratic Institute (NDI):
NDI's last application for registration was refused on March


18. NDI is now wrapping up its affairs here, paying off
local staff, and leaving Tajikistan. The official reasons
for the denials of registration were specious, including
rejection of documents the Government had previously
accepted. The State Committee for National Security opposed
NDI's presence in Tajikistan, and State Committee officers
told NDI staff that, as with Freedom House, "nothing will
happen to Tajikistan" if NDI were forced to leave. They also
harassed NDI's American resident representative, and
threatened NDI local staff. NDI Chairman Madeleine Albright
sent a letter to President Rahmon urging registration on
March 12, which has gone unanswered. We have told the
Tajikistani government that their rejection of NDI has
damaged Tajikistan's reputation in Washington and elsewhere,
but have seen no sign of any change in their views. The
Qbut have seen no sign of any change in their views. The
Foreign Minister apologized to the Ambassador for the
decision, noting that there is "misunderstanding" about NDI's
role in some government quarters, where officials are "not
yet ready for it."

Comment: Entitlement, Stagnation, and Looming Crisis


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20. (C) Three themes arise frequently in our discussions with
Tajikistani officials and with other international missions
here. First, that many Tajikistani officials consider
security issues to be the "real relationship" between
Tajikistan and the United States, and that human rights and
economic reform are window dressing. We have found this
viewpoint prevalent in much of the Tajikistani government
below the top levels, and it helps explain why NDI could not
get registered and businesses and investors face many
obstacles and much interference once established. It is
difficult but not impossible to push for a balanced agenda.
A recent example of success is the newly approved OSCE
mandate. The Tajikistani government had pressed for a
watered-down mandate (long on investment, short on the
political/human dimension) and more operational control,

threatening to eject the organization if it didn't get its
way. Tough, coordinated diplomacy from U.S. and European
representatives, however, turned the tide.



21. (C) The second recurrent theme is that the Government
believes foreigners should come invest here, but with no
strings attached, i.e. that well-connected Tajikistanis
should continue to control all businesses in the interest of
narrowly-defined personal gain. Even President Rahmon has
begun to espouse this point of view, recently telling a
visitor from the Brookings Institute that he didn't want
foreigners to gain control of businesses in Tajikistan. The
representative of the Aga Khan foundation summed up the
problem nicely; "The President prefers to control 90 percent
of a $100 pie, rather than loosen his control and have only
20 percent of a $1000 pie." In short, what is most important
to President Rahmon is his strength relative to potential
rivals in Tajikistan, rather than the overall strength of the
country.



22. (C) The third theme you will hear about is, as the Indian
Ambassador put it, the "sense of entitlement" among senior
government officials to endless bailouts by foreigners,
because Tajikistan has, since its creation in the 1920s, been
a subsidized semi-colonial state, in which an unaccountable
local elite does as it pleases, supported by foreigners
simply to keep control in an unstable border region. This
sense of entitlement, combined with the Soviet legacy of
central planning, helps explain the strong belief among top
ranking Tajikistani government officials that private
investment is a strategic political matter, not a business
decision; hence their repeated arguments to us that
investment and trade are matters of national prestige and
strategic competition among the west, Russia, and China.
Getting Tajikistan's leaders to understand our interests in
seeing Tajikistan diversify politically and economically, for
the stability and prosperity of the region, is a difficult
and slow process. To succeed we would welcome an expansion
of our engagement. End Comment.
JACOBSON