TAJIKISTAN - IF YOU HAVE TO ASK HOW MUCH IT COSTS, YOU MUST

UNCLAS DUSHANBE 000891 SIPDIS SENSITIVE DEPARTMENT FOR SCA/CA E.O. 12958: N/A TAGS: EFIN ECON PREL TI SUBJECT: TAJIKISTAN - IF YOU HAVE TO ASK HOW MUCH IT COSTS, YOU MUST NOT HAVE PRINTED ENOUGH MONEY ¶1. (U) This message is sensitive but unclassifed. Please protect accordingly. ¶2. (SBU) On June 24 Emboff and visiting USAID Economic Growth Officer met with the new Chairman of the Central Bank of Tajikistan, Sharif Rahimzoda. The Chairman gave a brief overview of economic conditions in Tajikistan, saying that he predicted 5 percent GDP growth in 2008, and 15 percent inflation (Note: public government inflation estimates have been as low as 7 percent for the first half of 2008, while media have reported independent estimates of over 25 percent. End note.) ¶3. (SBU) Rahimzoda then spoke about the process of auditing the Central Bank, as part of Tajikistan's efforts to restore relations with the International Monetary Fund following the discovery of the six cases of misreporting to the Fund by the Tajik Government. Rahimzoda said the process to conduct an audit of the Central Bank was slightly behind schedule because of the unexpected complexity involved in evaluating the bids from audit firms, and that the Central Bank was receiving assistance from the British Department for International Development and the Swiss National Bank in evaluating the bids. He said the Central Bank had selected an audit firm, but working out details of price and specific audit details would require time, and the actual audit would not begin until August. ¶4. (SBU) Rahimzoda said that contrary to earlier statements he had made to the Ambassador, the Central Bank would in fact be able to repay the USD 47 million owed to the IMF because of the latest misreporting incident, beginning on time in September. In fact, he said, the first tranche of $12 million was already in hand. Emboff asked him whether the rumors were true that the Central Bank came up with the money by ordering private banks in Tajikistan to give the funds to the Central Bank "off the books." Rahimzoda seemed somewhat taken aback by the question, but also prepared for it. He firmly denied that the Central Bank had demanded such illegal payments from private banks. Emboff asked what the source of funding was to repay the IMF, suggesting that state-owned enterprises such as the Tajik Aluminium Company clearly had large amounts of ready cash. Rahimzoda said the Government had not taken this route, and explained that the Central Bank had printed the necessary Tajik Somoni and used them to buy dollars through "normal exchange operations." ¶5. (SBU) Rahimzoda said that Tajikistan needed to more fully integrate into the "global economy," and in pursuit of this integration he asked for USAID's assistance in establishing a securities exchange in Tajikistan. USAID TDYoff replied that he had studied this possibility already, and looked at the experiences of other transitioning economies. He said that Tajikistan lacked a single company which could qualify for listing on a stock exchange, and that Tajikistan would do better to put the finances of its large state-owned enterprises on a more transparent footing and then consider listing them on a regional stock exchange, such as in Almaty. ¶6. (SBU) A senior adviser to the Central Bank (a U.S. citizen whose position is financed through USAID) told Emboff separately that the Chairman's admission that the Government of Tajikistan simply printed the money required to make the first payment, effectively Qprinted the money required to make the first payment, effectively charging all other holders of Tajik currency for the IMF repayment, was a positive sign of greater openess and honesty in dealing with foreign missions about state finances. At the same time, the adviser noted, it showed that one of the Government's stated economic goals -- making the Tajik Somoni fully convertible with other currencies -- was still in the realm of fantasy. ¶7. (SBU) Comment: The day before the meeting a private bank employee contacted the Embassy to tell us that his bank and others had been ordered to give money to the Central Bank to repay the IMF, and told to keep this matter "off the books." The latter explanation, that the Government printed additional currency to make the IMF repayment, does not reassure us about the direction of Tajik Government's management of the economy. The basis of both solutions is for the Government to hand the IMF's bill to the people of Tajikistan, while the Government continues to pour resources into prestige projects. End Comment. JACOBSON