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RR RUEHLN RUEHVK RUEHYG
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R 251102Z MAY 06
FM AMEMBASSY DUSHANBE
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RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
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RUEKJCS/SECDEF WASHDC
RHMFIUU/HQ USEUCOM VAIHINGEN GE
RUCNDT/USMISSION USUN NEW YORK 1170
RUEHNO/USMISSION USNATO 1594
RUEHVEN/USMISSION USOSCE 1637
RUEHBS/USEU BRUSSELS 0956
RUEHDBU/AMEMBASSY DUSHANBE 8880

UNCLAS SECTION 01 OF 04 DUSHANBE 000977 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EAGR TI
SUBJECT: TAJIKISTAN:  LAND DEBT RESOLUTION SLOW GOING:  MORE DONOR 
ASSISTANCE, LESS CONFLICT OF INTEREST NEEDED 
 
 
DUSHANBE 00000977  001.2 OF 004 
 
 
¶1.  (SBU)  SUMMARY:  Tajikistan's impoverished farmers owe over 
$292 million in land and cotton debt.  The government, 
international financial institutions and NGOs have long 
recognized the problem and that solving it takes political will. 
 Conflicting interests in the government have slowed reform, and 
international donors need to cooperate more closely to make 
progress.  The extent of the problem and gaps in current 
solution plans mean there is room for the United States to play 
a larger role in land reform.  Land reform, which includes 
reducing land debt and empowering farmers, could significantly 
reduce poverty in Tajikistan.   END SUMMARY. 
 
THE INDEPENDENT COMMISSION'S FINDINGS 
 
¶2.  (U)  During a Farm Debt Resolution Conference May 13, 
Tajikistan's Independent Commission Working Group on farm and 
cotton debt reported farmers' debts are increasing.  Total debts 
amount to over $292 million.  The government established the 
commission, led by Matlubkhon Davlatov the State Economic 
Advisor to the President, to resolve Tajikistan's massive land 
debt problem. Tthe Commission includes international financial 
institutions and donors.  Commission representatives reminded 
the audience the government is not to blame, but is taking 
action to resolve the problem, namely caused by unscrupulous 
investors, commonly referred to as "futures companies." 
Investors typically write a "futures contract" with the farmers 
for a minimum quantity of cotton calculated to repay the value 
of inputs provided.  Investors supply farmers with in-kind 
technical equipment including seeds and fertilizers at higher 
than market prices, and typically charge 30% interest until the 
cotton is sold 15 months later.  Investors are responsible for 
marketing the cotton and return any surplus funds (usually none) 
to the farmer. 
 
¶3.  (U)  According to the commission, 85% of cotton farms are 
not profitable. However, the government will attempt to 
resuscitate farms because it believes cotton is an attractive 
commodity on the world market.  Cotton is the largest 
agricultural export in Tajikistan and its second largest export 
overall.  Cotton is sent by rail from Tajikistan to Baltic 
seaports, another inefficiency considering the closer markets of 
Pakistan, India and China. 
 
¶4.  (U)  A baseline study of farm debt ordered by the 
independent commission shows, among farmers surveyed, the 
average cotton farmer's salary is 129 somoni per month 
(approximately $40) for the entire family.  Some families only 
earn 73 somoni per month (approximately $23).  Farmers explained 
the most serious economic problems they face are lack of funds, 
debt accrued, lack of farm machinery and equipment, delayed 
procurement of resources, and lack of water. 
 
¶5.  (SBU)  The majority of farms report receiving instructions 
from the local government on which cotton ginnery to use and how 
much cotton they must produce.  Investors work closely with the 
local government and sometimes instruct the local government how 
to manage the farms.  In most cases, the investors also own the 
gins, so farmers are instructed to use the companies' partner 
gins. 
 
¶6.  (SBU)  The government collects up to 30% of its state 
revenues from taxes in the cotton sector. The commission called 
on international assistance to relieve the debt.  One reason the 
investors and local government have control over the farmer is 
that each district has a tax quota it must deliver to the 
central government.  Therefore, local governments want farmers 
to use gins within the district to collect taxes and meet their 
quota.  Local government officials have been known to destroy 
farms that refuse to obey orders. 
 
DUSHANBE 00000977  002.2 OF 004 
 
 
 
¶7.  (U)  The study also reports 76% of farmers believe they 
would be unable independently to sell their cotton harvest 
themselves without investors.  These figures show the need for 
low-interest loans and to provide technical assistance to 
farmers to create business plans and skills to negotiate and do 
business with investors to bring their products to the market. 
On average, 59% of farmers have never heard of the independent 
commission established to resolve the land debt crisis.  In some 
districts, no farmers have heard of the commission.  Farmers are 
uneducated and unaware of the comprehensive cotton business in 
Tajikistan. 
 
NEXT STEPS FOR DONORS 
 
¶8.  (U)  USAID Country Director and PolOff have attended a 
series of international donor meetings led by the Asian 
Development Bank outlining next steps for the donor community. 
Meeting participants, including the European Commission, the 
International Monetary Fund, the International Financial 
Corporation, the European Bank for Reconstruction and 
Development and other diplomatic missions, support a unified 
approach towards the government in order to implement change. 
Prior to the independent commission's May 13 presentation, ADB 
advisor Hans Woldring sent Davlatov a memorandum outlining areas 
where progress has been made towards farm debt resolution, and 
areas where additional donor assistance is needed. 
 
¶9.  (U)  LAND USE CERTIFICATES:  Currently, the government owns 
all land in Tajikistan.  Some donors, including the World Bank 
and USAID, have been working with farmers to issue each farmer a 
land-use certificate, which in the future would, it is hoped, 
serve essentially as lease certificates showing the farmer has 
irrevocable rights from the government to use the land.  Donors 
also hope farmers will have the ability to pledge these land-use 
certificates as lending collateral for new loans and for the 
certificates to be tradable, thereby creating a land-use rights 
market.  Local banks currently charge interest at upwards of 36% 
to farmers and only for a two to three month period for cash 
flow purposes.  Often banks require collateral, which farmers 
are not able to provide.  Land-use certificates as collateral 
would allow farmers to take out loans from the banks.  The 
government does not want to privatize land, and donors should 
make the government aware that allowing for tradable land-use 
certificates does not require land privatization. 
 
¶10.  (SBU)  NEW LAND REGISTRATION LEGISLATION:  One of the first 
tasks for the donor community is to approach the Tajik 
government to suggest redrafting land registration legislation. 
A draft law may go to parliament in June, allowing the Ministry 
of Justice (MOJ) to register buildings and other improvements on 
land.  The State Land Committee currently registers all land and 
 will continue to do so.   Having two agencies register land 
parcels and buildings separately with no links between the two 
databases would be expensive, inefficient, and non-transparent. 
It would also make the property and potential land market more 
difficult to manage.  Bill Kennedy of ARD/Checchi (USAID) is 
advising the Tajik government on creating a system to register 
immovable property and opposes giving the Ministry of Justice 
registration authority.   In his opinion, the entire law needs 
to be redrafted.  The Ministry of Justice does not have proper 
expertise or resources to start a registration system. 
(COMMENT:  Some donors fear MOJ officials may personally benefit 
from the registration system, or use the mechanism as a 
political tool.  END COMMENT.) 
 
¶11.  (U)  A unified registration system, either under one agency 
or through a common database, would mean a unified tax 
collection system that would be cheaper and more efficient, 
 
DUSHANBE 00000977  003.2 OF 004 
 
 
thereby allowing the government  higher tax revenues.  Also, a 
single land registry database would consolidate information, 
allowing for easier access to more consistent information.  It 
would limit the opportunities for corruption and reduce the 
number of property disputes.  Overall, it would improve the 
security of land tenure, giving private parties the confidence 
to invest and further raise the government tax base and 
facilitate  development of a land market. 
 
¶12.  (SBU)  BETTER REGULATORY OVERSIGHT: USAID organizations are 
providing legislative reform and regulatory oversight assistance 
to the government of Tajikistan, as well as providing farmers 
with legal services and agriculture education programs.  They 
are working with the National Bank of Tajikistan (NBT) to 
provide assistance on how the NBT can monitor and regulate 
commercial lending in the agriculture sector, including 
microfinance banks.  USAID will also work with courts to review 
bankruptcy legislation and analyze contractual agreements 
between lenders and borrowers.  Investors have taken advantage 
of farmers' lack of knowledge to draft contracts 
disproportionately beneficial to the investor. 
 
¶13.  (U)  UNIVERSAL STANDARDS:  ADB is also providing support to 
introduce Universal Cotton Grade Standards.  Parliament has 
already approved the adoption of universal standards, and ADB is 
working with the government to carefully select an implementer 
for other market reforms.  Introducing cotton grade standards 
would allow Tajikistan's cotton to be internationally certified, 
thereby increasing its market value and making it more 
attractive to international buyers. 
 
ADDITIONAL DONOR SUPPORT REQUIRED 
 
¶14.  (U)  Additional support is needed in a number of areas. 
The highest priority is "freedom to farm," meaning reducing 
local government interference in cotton production.  Currently, 
the government issues quotas and forces farms to grow cotton. 
However, ADB's letter to Davlatov advises the government to 
create a profitable business environment for agriculture and 
allow farmers to decide what crop to grow.  If farmers have a 
sense of ownership of the land, they will be more motivated to 
run a healthy business.  One of the key findings the independent 
commission mentioned during the conference is that farmers have 
little motivation or incentive to produce more cotton. 
Increased farmer education programs and legislation clearly 
stating the role of local government will help reduce government 
interference. 
 
¶15.  (U)  Additional donor support is also needed to establish 
alternative financing sources.  Donors have already begun 
providing rural credit.  However, resolving old debt, allowing 
the use of land certificates as collateral, and improving sector 
profitability still require donor assistance. 
 
¶16.  (U)  Tax reform assistance is also needed.  Each farmer's 
tax burden is excessive.  ADB proposes donors review the tax 
system, to advise how to adjust the tax base  to reduce the 
burden on the agriculture sector.   In addition, the Tajik 
Universal Goods and Commodity Exchange needs to become a true 
commodities exchange with linkages to international markets. 
 
¶17.  (U)  Technical assistance such as seed breeding, 
implementation of seed quarantine regulations, updating of 
ginning equipment and farm equipment, introduction of better 
agricultural chemicals, and additional farmer training is 
needed, but no donor has taken the lead. 
 
¶18.  (SBU)  COMMENT:  Land debt reform has been hindered by a 
lack of strong political will from the Tajik government. 
 
DUSHANBE 00000977  004.2 OF 004 
 
 
Although in public Rahmonov has urged land reform, sources 
report the powerful chairman of Tajikistan's National Bank, 
Murodali Alimardonov has delayed land reform by voicing 
discouragement along the way.  Alimardonov is a significant 
stake-holder in one of the largest futures companies in 
Tajikistan-a clear conflict of interest.  Many other ministers 
are frustrated and have expressed dissatisfaction with 
Alimardonov's meddling. 
 
¶19.  (SBU)  COMMENT CONTINUED:  ADB is attempting to take the 
lead to coordinate donor efforts, but has faced resistance and 
withholding of information from some other multi-lateral and 
bi-lateral donors.  International donors plan to meet with 
Davlatov to discuss their concerns.  The solution to land debt 
requires not only financial assistance, but better cooperation 
from the international community to not duplicate efforts and 
solve the problem.  Tajikistan's people understand that land 
debt cripples their economy, but they need strong international 
advocates to encourage true reform among those power holders in 
the Tajik government who stand to lose the most, should the 
futures system be reformed.  END COMMENT. 
HOAGLAND