DEPUTY ASST US TRADE REP FINDS TAJIK GOVT MORE INTERESTED IN

C O N F I D E N T I A L SECTION 01 OF 03 DUSHANBE 000510 SIPDIS STATE DEPARTMENT FOR SCA/CEN STATE PASS TO USTR FOR LILIENFELD E.O. 12958: DECL: 4/27/2019 TAGS: ETRD ECON PREL UZ TI SUBJECT: DEPUTY ASST US TRADE REP FINDS TAJIK GOVT MORE INTERESTED IN HANDOUTS THAN HAND UP CLASSIFIED BY: TRACEY A JACOBSON, AMBASSADOR, EXE, DOS. REASON: 1.4 (b),(d) ¶1. (C) Summary: Deputy Assistant United States Trade Representative for South and Central Asia Claudio Lilienfeld visited Dushanbe April 21-22 to review U.S.-Tajik trade relations and the status of the U.S.-Central Asian Trade and Investment Framework Agreement (TIFA). Matlubkhon Davlatov, the President's economic policy advisor, appeared relatively unaware of TIFA; he was far more fixated on the impending International Monetary Fund (IMF) vote on a new $116 million loan to Tajikistan. Deputy Minister of Economic Development and Trade Larisa Kislyakova was well-versed in TIFA and appeared interested in giving the TIFA process more substance. DAUSTR Lilienfeld told both that the U.S. was exploring a three-pronged strategy: enhancing the multi-country TIFA agreement, developing further bilateral ties, and using TIFA to engage with Afghanistan. He stressed the importance the United States places on further economic reform in Tajikistan. End summary. Davlatov: Fixated on the IMF Decision ¶2. (C) Matlubkhon Davlatov, State Advisor to President Rahmon on Economic Affairs (and Rahmon's uncle) began his meeting with DAUSTR Lilienfeld by mentioning that the IMF was due to decide within the next few hours whether to provide renewed economic assistance to Tajikistan. (The IMF had suspended assistance and demanded repayment of $47 million in loans after the National Bank of Tajikistan admitted deliberately misreporting its balance sheet to the IMF. A subsequent audit of the Bank by Ernst & Young revealed numerous additional problems.) Davlatov said he had been combing through the internet for signs of the U.S. position on new IMF assistance, but he had seen no indication of what Washington was thinking. He raised his eyebrows suggestively at us but did not wait for any comment. (Note: The IMF voted to approve the $116 million Poverty Reduction and Growth Facility for Tajikistan. End note.) Tajiks Counting on Assistance with Financial Crisis ¶3. (SBU) Noting that the United States "has always helped us with our needs," Davlatov thanked us for our ongoing assistance to the Republic of Tajikistan, mentioning specifically tens of millions of dollars provided by USAID and the construction of the bridge to Afghanistan at Nizhniy Pyanj. He highlighted as well the recent collaboration on the Northern Distribution Network bringing supplies to Afghanistan. He then ruefully noted the expense and difficulty in guarding the 1,400km border after the Russian departure in 2005, suggesting that any additional help the United States provided would be appreciated. ¶4. (SBU) Davlatov spent the better portion of the meeting providing an overview of Tajikistan's current economic condition. He acknowledged difficulties stemming from the financial crisis, particularly the steep drop in prices for major Tajik exports cotton and aluminum, as well as the decline in remittances from compatriots working in Russia. He rattled off some statistics: GDP growth, 8.0% last year, had slowed to 3.2%. Remittances had dropped by over 30%. Some 40,000 guest workers had returned home. The decline in remittances had slowed inflation, however, from 3.4% to 1.2%, comparing the first three months of 2009 with the same period in 2008. Davlatov said the government had created 110,000 new jobs last year to help returning migrants, mostly in the agricultural sector, and intended to create an additional 180,000 jobs this year. (Note: These numbers appear almost impossibly high. To the extent they are accurate, it should be noted that agricultural jobs are among the least remunerative in Tajikistan. Many farmers are in fact forced to work essentially for free. End note.) ¶5. (SBU) Despite government efforts, the budget would come up $200 million short due to the crisis. Davlatov said that international organizations were looking to fill the gap: the DUSHANBE 00000510 002 OF 003 Asian Development Bank would spend $40 million, the European Bank of Reconstruction and Development had pledged 34 million euros, the World Bank and the Islamic Development Bank were looking at $20 million each, and the IMF was considering spending $70 million this year. "If We Still Need Money, We'll just Turn to China" ¶6. (C) Almost any discussion with a Tajik government official about international investment includes a mention of China, and Davlatov was no exception. If, after reviewing the plans of the international financial organizations, "we still need money, we'll just turn to China." He noted that Kazakhstan "went to China and got $10 billion," and Tajikistan could do the same. China is already funding two major projects here, the "New Silk Road" highway from Dushanbe through Kyrgyzstan to the Chinese border and the 500 kV North-South electric transmission line, costing some $600 million. With international political interest so high in Tajikistan, he said, the country was in a difficult position. "China is pushing, Russia is pushing, and the United States is pushing. We need to choose our path carefully." U.S. TIFA Strategy ¶7. (U) DAUSTR Lilienfeld, thanking Davlatov for his overview, noted that one of his principal goals for this visit was to inform Central Asian governments about the U.S. interest in strengthening the TIFA between the United States and the five Central Asian countries. He noted that the Trade Representative's Office was exploring a three-pronged strategy: (1) adding more substance to the multi-country agreement, and engaging more frequently at the working level to follow up on specifics; (2) creating a more robust bilateral dialog to consider issues of mutual concern; and (3) using TIFA to engage more with Afghanistan. DAUSTR Lilienfeld noted that, with a new team in the White House, and new leadership at USTR, all policy approaches and existing mechanisms (e.g., TIFAs) were subject to review and likely would focus more sharply on seeking results. ¶8. (SBU) Responding to the discussion about China's large, state-led investment programs, Lilienfeld stated that Western foreign investment is led by the private sector, not the government. The United States was thus interested in seeing that essential business environment reforms were carried through in Tajikistan. At the moment there is only one U.S. firm with major investments in Tajikistan, the antimony-mining firm Comsup Commodities, and it is having difficulties with interference from the government. (Note: Comsup has been pressured, primarily by the Prime Minister's office, to sell pre-processed antimony to a local buyer. The Embassy has been supporting Comsup's right to make its own business decisions. End note.) Lilienfeld noted that other firms are watching the Comsup case with concern. ¶9. (SBU) Davlatov responded primarily to the Afghanistan issue, noting that President Rahmon had recently told the Parliament of the European Union that Tajikistan played a stabilizing role in Central Asia, and that it could do the same for Afghanistan. He said that Tajikistan was already bearing a considerable burden. He registered Lilienfeld's expression of concern about Comsup, but sought to minimize the issue as "simply the result of a misunderstanding. We are resolving it." Tajik Agreement that TIFA Needs more Teetha ¶10. (SBU) DAUSTR Lilienfeld met next with Deputy Minister for DUSHANBE 00000510 003 OF 003 Economic Development and Trade Larisa Kislyakova. Kislyakova was instrumental in arranging the TIFA meetings in Dushanbe last year, and, according to some accounts, may be the only person in the Tajik Government who is fully versed in the issue. She agreed completely with DAUSTR Lilienfeld's desire to bolster the TIFA process, but she could not say the same for other countries. Of the five Central Asian states, she said only Tajikistan and Kyrgyzstan were fully committed to the process. Uzbekistan in particular had played an unconstructive role. Despite talk of reducing trade barriers, Tashkent instead had been erecting them. Since nearly all of Tajikistan's commodities must pass through Uzbekistan, this had a seriously negative effect. For TIFA to become more meaningful, Uzbekistan and other countries must honor their commitments. She said that, as an honest broker, the United States could play a major role in ensuring that this happened. Otherwise TIFA was just a talk shop. ¶11. (U) Kislyakova agreed with the emphasis on Afghanistan, saying that the two countries had a lot to gain from economic cooperation. Already border trade had become a significant factor in the economy at four border crossings. The possibility for increased trade might prove particularly beneficial to women, who may find employment in the sector. 12 (C) Comment: The positive comments from Davlatov and Kislyakova about Tajik-Afghan cooperation are unfortunately probably just ear candy for their western visitors. Tajiks are generally more focused on containing than cooperating with their southern neighbor. (While this tends to stymie efforts at increasing trade, it at least means that we have relatively meaningful law enforcement and border security cooperation.) Davlatov's concern about the IMF results, however, suggests an opportunity to advocate for real business climate improvements by insisting that assistance - whether bilateral or multilateral - or attention (e.g., greater bilateral engagement on trade investment) be made conditional on concrete reforms. End Comment. JACOBSON