Identifier
Created
Classification
Origin
08DUSHANBE86
2008-01-14 06:22:00
CONFIDENTIAL
Embassy Dushanbe
Cable title:  

TAJIKISTAN PLEADS FOR HELP TO RESOLVE SELF-INFLICTED COTTON FINANCE CRISIS

Tags:  EFIN EAGR PREF TI IMF 
pdf how-to read a cable
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DE RUEHDBU #0086/01 0140622
ZNY CCCCC ZZH
O 140622Z JAN 08
FM AMEMBASSY DUSHANBE
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 0106
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0013
RUEHBUL/AMEMBASSY KABUL 0018
RUEHML/AMEMBASSY MANILA 0003
RUEHNE/AMEMBASSY NEW DELHI 0007
RUEHKO/AMEMBASSY TOKYO 0002
RUEHVEN/USMISSION USOSCE 0002
C O N F I D E N T I A L DUSHANBE 000086 

SIPDIS

SIPDIS

FOR SCA/CEN

E.O. 12958: DECL: 01/14/2018
TAGS: EFIN EAGR PREF TI IMF
SUBJECT: TAJIKISTAN PLEADS FOR HELP TO RESOLVE
SELF-INFLICTED COTTON FINANCE CRISIS

REF: 07 DUSHANBE 1753

C O N F I D E N T I A L DUSHANBE 000086

SIPDIS

SIPDIS

FOR SCA/CEN

E.O. 12958: DECL: 01/14/2018
TAGS: EFIN EAGR PREF TI IMF
SUBJECT: TAJIKISTAN PLEADS FOR HELP TO RESOLVE
SELF-INFLICTED COTTON FINANCE CRISIS

REF: 07 DUSHANBE 1753


1. (SBU) Summary: President Rahmon's top policy advisors,
Erkin Rahmatulloev (Foreign Affairs) and Matlubkhon Davlatov
(Economic Affairs),requested a meeting with the Ambassador
January 4 to smooth the way for the Tajik delegation's
meetings with International Monetary Fund and World Bank
officials in Washington January 14-16. Davlatov will lead
the official Tajik delegation to Washington to apologize to
the Fund for misreporting on prior programs (reftel) and to
secure a new financing facility. A new Fund program is
essential, according to Davlatov, in order to secure
commercial financing for this year's cotton crop and protect
livelihoods of Tajikistan's impoverished farmers. Davlatov
asked for assistance in arranging the delegation's meetings
with State and Treasury officials prior to their Fund and
World Bank meetings in order to smooth the way with the U.S.
Executive Director for the Fund. Central Bank Chairman
Alimardonov followed up by briefing Embassy staff about
efforts "already underway" to reform the agricultural sector
here. Alimardonov is the likely fall guy if the Tajik
government fails to garner the Fund's approval for a new
program, or if the Fund forces extremely strict conditions on
Tajikistan. End summary.

Davlatov Pleads for U.S. Sympathy and Support
--------------


2. (SBU) Foreign Policy Advisor Rahmatulloev invited the
Ambassador to an urgent meeting January 4. He turned the
meeting over to Economic Policy Advisor Davlatov, who
requested U.S. support for the January 14-16 Tajik finance
delegation to Washington. Davlatov delivered his briefing,
painting a bleak and over-simplified picture of the coming
agricultural cycle, should Tajikistan be unable to secure
adequate financing. Tajikistan, he explained, is still in
the early stages of transition to a market economy, and Tajik
farmers remain poor and dependent on cotton. Without
adequate financing, the farmers would be unable to plant
either cotton or any other crops. He said that there are
many places in Tajikistan where cotton is still the most

profitable crop. The Ambassador pointed out that the
investors and "futurists" -- not the farmers -- were reaping
any profits and that those who pocketed such profits over the
years should be putting up their own resources to resolve
this crisis.


3. (SBU) Davlatov said a new agreement with the
International Monetary Fund was essential in order to secure
commercial financing for this year's crop cycle. (Note: Most
farmers should already have plowed their land for cotton in
November and December, with planting taking place typically
from February through March. End note.) According to
Davlatov, even the Chinese Government indicated that it might
condition future concessional lending on Tajikistan being in
good standing with the Fund. We later asked the resident
Chinese Charge whether official financial assistance from
Beijing would be conditioned on a Fund program. He
acknowledged that China is concerned about the financial
situation in Tajikistan but stopped short of disclosing any
conditionality.


4. (SBU) Davlatov repeated several times that Tajikistan
would be ready to accept any conditions the Fund demanded.
Qwould be ready to accept any conditions the Fund demanded.
He acknowledged that Tajikistan had misreported to the Fund
(six times, reminded the Ambassador) and placed the blame for
those inaccurate reports on Central Bank Chairman Alimardonov
who was not present. Davlatov explained that he was
especially concerned about the U.S. Executive Director to the
Fund, Meg Lundsager, who wields much influence at the Fund
and is "watching Tajikistan very closely." Davlatov's
delegation to Washington will include Central Bank Chair
Alimardonov and Deputy Finance Minister Nuraliev (married to
President Rahmon's daughter Ozoda) from Dushanbe, along with
Washington-based Tajik Ambassador Shirinov and Tajik advisor
to the Fund and World Bank, Zavkijon Zavkiev.


5. (SBU) The Ambassador emphasized that given Tajikistan's
track record of misreporting to the Fund and dragging its
feet on agricultural reforms, we and the international
financial institutions will correctly demand to see concrete
actions, not just more verbal reassurances. When Davlatov

said that addressing cotton sector reform was a presidential
priority, the Ambassador said those priorities were not as
readily apparent to observers as the new presidential palaces
and dachas costing hundreds of millions of dollars. Davlatov
seemed ready for the comparison, saying he remembered the
Ambassador's previous remarks about ostentatious government
funded projects and lavish spending.


6. (SBU) Visiting European Commission Ambassador van der
Meer recounted to us his own meeting with Davlatov three days
later covering the same issues. Van der Meer told Davlatov
bluntly that "cotton is not the future of the country" and
Europe would not support a bail-out of the cotton debt.


Meeting with Central Bank Chairman Alimardonov
-------------- -


7. (SBU) On January 11 Bank Chairman Alimardonov called us
to the Central Bank on short notice, to brief us about the
Tajik Government's efforts to restructure the cotton sector
and to promote "freedom to farm" (allowing farmers to grow
crops other than cotton). He explained to us that farmers
would from now on be free to work with whatever banks and
buyers they wished and that legislation defining their land
use rights would be worked out within the month of January.
Note: Presidential Decree 111 already established "freedom to
farm" principles last year, but government officials,
especially at the local levels, continued to intervene to
enforce cotton production quotas. The donor community in
Dushanbe and the International Financial Institutions
generally give the government poor marks for demonstrating
adequate political will to reform the agricultural sector.
End note.


8. (SBU) Alimardonov launched into a plea for financial
assistance to get Tajikistan out of its cotton debt
predicament. He acknowledged that the Central Bank, through
its misreporting and ill-advised loan guarantees (reftel),
had gotten Tajikistan into its current mess. He repeated
Davlatov's message that Tajikistan would accept "all
conditions" imposed by the Fund in order to obtain financial
support to pay its debts -- including restructuring of the
Central Bank, its rules, and its Chairman. He echoed
Davlatov's talking points, saying this was the president's
position, not just Alimardonov's. He said that cotton debt
was the biggest problem Tajikistan faced right now, and that
the Central Bank's disastrous involvement in the cotton
sector was generally counter-productive. Tajikistan is on
the edge of the abyss if it could not resolve its cotton debt
issue, he said, illustrating his point by rolling a pen
("that's us") off the edge of the conference table. PolEcon
Chief advised Alimardonov that, given the history of
misreporting and misgovernance, he should expect difficult
discussions and tough conditions from the Fund and World Bank
in Washington. Alimardonov nodded contritely.


9. (C) Separately, PolEcon Chief received a call on January
11 from Hans Waldren of the Asian Development Bank in Manila.
Waldren worked for five years in Dushanbe for the Asian
Development Bank and the Fund. He called "in a personal
capacity" to suggest that a basic condition for any Fund
bailout of Tajikistan be that Tajikistan accept a non-Tajik
Qas Central Bank Chairman for a period of five years. Waldren
said that his experience and Tajikistan's track record of
repeated Central Bank misreporting and misfeasance convinced
him that any Tajik, no matter what his level of competence,
would eventually cave in to pressure from President Rahmon to
misuse Central Bank funds for pet presidential projects or to
bankroll economically unsound policies such as financing
cotton quotas. In short, Waldren said, the current debt
crisis would be repeated if a Tajik remained Central Bank
Chairman. Waldren said he discussed this idea with the
Fund's regional director on January 10th, and that the
regional director supported the idea. He also planned to
raise it with the Australian Executive Director at the Fund.
(Waldren is Australian.) He called us because he sought U.S.
support for this condition, as the United States "holds the
whip" at the Fund. The British and Swiss Development
representatives in Dushanbe later told us that Waldren had
contacted them too to seek their support for a non-Tajik Bank
Governor. They favored the idea.



10. (C) Comment: Alimardonov's neat gesture of pushing his
pen off the table probably applies as much to him personally
as to Tajikistan overall. It appears he is being set up as
the fall guy for the Government's cotton debt problem.
Alimardonov certainly is an apt candidate for that role,
given his signature is on the falsified Central Bank
reporting to the Fund. Like most high-level officials here,
Alimardonov is rumored to be personally corrupt. He owns
large areas of agricultural land and horse farms -- often
used to entertain the president's official guests --
reputedly paid for by corrupt dealings in the Central Bank.
But Hans Waldren gets to the heart of the problem, which is
President Rahmon's desire to use Government resources for
personal projects and lavish entertaining, and the
irresistible pressure he can place on the Central Bank and
any other institution in Tajikistan with substantial sums of
money. A non-Tajik Central Bank Chairman would be a very
useful measure, as would conditioning any debt assistance on
a halt to presidential show projects. Both conditions would
be but very difficult for President Rahmon to accept.
HUSHEK