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