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C O N F I D E N T I A L SECTION 01 OF 07 TOKYO 007164 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/28/2016 
TAGS: PREL PGOV CH RU ZK JA
SUBJECT: U.S.-JAPAN CENTRAL ASIA DIALOGUE: PART TWO, 
FOREIGN ASSISTANCE AND PROJECT FINANCE 
 
Classified By: CDA Joseph R. Donovan.  Reasons 1.4 (b,d) 
 
¶1.  (SBU) SUMMARY: Deputy Assistant Secretary for South and 
Central Asian Affairs Evan Feigenbaum and a team of State and 
USAID officials continued their full-day U.S.-Japan 
consultations on Central Asia with interagency meetings on 
foreign assistance and project finance.  MOFA International 
Cooperation Bureau Deputy Director-General Hiroshi Fukada 
hosted a session attended by four other agencies to discuss 
assistance programs to the countries of Central Asia. 
Following this meeting, DAS Feigenbaum and the USG team met 
separately with officials from the Japan Bank for 
International Cooperation (JBIC) and the Japan International 
Cooperation Agency (JICA) to further discuss assistance 
programs and project finance opportunities in Central Asia. 
DDG Fukada told Feigenbaum the United States and Japan should 
increase information sharing as a first step in coordinating 
their development programs in Central Asia.  Feigenbaum 
stressed that development assistance strategies must focus on 
broad capacity-building, to support a spectrum of interests, 
including enhanced security, the expansion of markets, 
business development, and the spread of political and 
economic openness in the region.  The two sides also 
discussed specific strategies and underlying assumptions of 
their assistance to Central Asia, with an eye toward 
enhancing cooperation between the U.S. and Japan.  END 
SUMMARY. 
 
¶2.  (SBU) SCA DAS Evan Feigenbaum led a U.S. team to Tokyo on 
December 9 for discussion of how the United States and Japan 
can work together to advance shared goals in Central Asia. 
He was accompanied by SCA Senior Advisor for Regional 
Economic Integration Robert Deutsch, USAID Europe and Eurasia 
Bureau Senior Program Officer Timothy Alexander, and USAID 
Central Asia Mission Director in Almaty, Kazakhstan, 
Christopher Crowley.  In addition to discussing assistance 
programs, DAS Feigenbaum,s consultations also covered U.S. 
and Japanese strategic priorities in the region, policies 
toward each Central Asian country, the roles of Russia, 
China, and Iran, and the climate for private investment in 
the region, reported septels. 
 
-------------------------- 
ASSISTANCE IN CENTRAL ASIA 
-------------------------- 
 
¶3.  (SBU)  MOFA International Cooperation Bureau Deputy 
Director-General Hiroshi Fukada began the interagency session 
on assistance priorities by introducing a Japanese team from 
various MOFA bureaus, as well as JBIC, JICA, the Ministry of 
Economy, Trade, and Industry (METI), and the Ministry of 
Finance. 
 
¶4.  (SBU) Japan believes, said Fukada, that Central Asian 
countries lack the ability to manage existing infrastructure, 
so donors must concentrate on building management capacity by 
training personnel and providing technical assistance.  The 
collapse of the Soviet Union left a legacy of problems that 
continue to plague border control, water/energy management, 
transportation, and business development in Central Asian 
countries.  Central Asian governments must improve their 
cooperation with each other, international organizations, and 
the private sector if Japan and the United States are to 
conduct successful programs. 
 
Borders and Customs 
------------------- 
 
¶5.  (SBU) The United States, said Feigenbaum, focuses heavily 
on &wedge8 issues.  For instance, improving border security 
 
TOKYO 00007164  002 OF 007 
 
 
and modernizing customs help to improve security but also 
facilitate trade.  Senior Advisor Deutsch noted that the U.S. 
is engaged with all of the countries of the region on border 
issues, usually in an effort to stop illicit trade in 
narcotics or products of proliferation concern.  In a number 
of cases, notably Tajikistan and Afghanistan, there is a 
complete lack of border facilities  and countries seek to 
manage their borders well inside of the border.  The 
unpredictable nature of border controls, as well as other 
obstacles to the movement of goods such as corruption and 
random checkpoints, are identified by shippers as the biggest 
barrier to trade.  Deutsch noted that we hope to work with 
the International Financial Insititutions, other donors, and 
the countries of the region, based on our enforcement border 
control work, to try to facilitate trade.  In addition to 
physical resources, creating central databases and training 
personnel are key aspects of improving border security.  The 
Japanese side indicated that a trade facilitation mission 
will shortly be looking at these issues in Central Asia, and 
Deutsch requested that Japan coordinate its program ideas 
with U.S. embassies in the region so that the two countries 
could develop complementary strategies. 
 
¶6.  (SBU) Border control is closely linked to improving the 
business environment, noted MOFA Aid Policy Planning Division 
Director Naoki Ito.  To improve security and enhance regional 
trade, the government of Japan is conducting project 
formulation studies in all countries of Central Asia except 
Turkmenistan.  Japan is currently evaluating a project 
proposal for Tajikistan and is looking for opportunities on 
the Afghanistan side of the border as well, said DDG Fukada. 
The next step for U.S.-Japan cooperation is to increase 
information sharing on programs already being implemented as 
well as proposals for future programs.  DDG Fukada suggested 
the United States and Japan exchange papers with information 
on new programs in February 2007. 
 
¶7.  (SBU) Supporting the full implementation of international 
customs codes is a critical aspect of this initiative, 
explained USAID,s Alexander, emphasizing the need for 
private sector access to information and documentation 
requirements. 
 
Transportation Links Key to Regional Prosperity 
--------------------------------------------- -- 
 
¶8.  (SBU) Developing transportation links in the Central Asia 
region is a priority for Japan, said DDG Fukada.  When the 
former Soviet Union collapsed, it left behind a network of 
railways that repeatedly crossed national borders.  Japan has 
been assisting Central Asian countries, especially Uzbekistan 
and Tajikistan, to rebuild the railways to respect national 
sovereignty.  Fukuda again stressed the need to develop 
infrastructure management capabilities, noting that the 
Central Asians were still unprepared to manage existing 
railways or border crossings. 
 
Water and Energy Trade Integration 
---------------------------------- 
 
¶9.  (SBU) Improving the distribution of electricity and water 
is a clear way to increase stability in the region, the U.S. 
team told DDG Fukada.  The United States, said Deutsch, is 
working at three-levels to develop the region,s energy 
trade: targeting domestic markets, bilateral markets, and 
regional markets.  Domestic programs focus on fixing pricing 
problems, fighting corruption, enacting legal reforms, 
increasing private sector involvement, and developing 
institutions, explained USAID,s Crowley.  The United States, 
Deutsch added, is also working with its international 
 
TOKYO 00007164  003 OF 007 
 
 
partners to improve availability of electricity in 
Afghanistan, notably through bilateral trade with its Central 
Asian neighbors.  Afghanistan is negotiating supply 
arrangements with Turkmenistan, Uzbekistan and Tajikistan. 
The Asian Development Bank is heavily engaged in developing 
the facilites for transmission of this electricity in the 
northern part of the country.  It will approve a loan for the 
inteconnection with Tajikistan in mid-December.  Deutsch 
indicated that the U.S. is also working closely with the 
International Financial Institutions, led by the World Bank 
to develop a model project that will deliver 1000 megawatts 
of electricity to Pakistan from Tajikistan and Kyrgyzstan 
across Afghanistan by 2010. 
 
¶10.  (SBU) Japan is currently conducting six different 
projects in Central Asia to develop the region,s water and 
energy resources.  In addition to two thermal power plants 
and three water resource projects in Uzbekistan, Japan 
supports the Astana Water Supply and Sewerage project in 
Kazakhstan.  METI Middle East and Africa Division Director 
Toshikazu Masuyama noted that lack of a legal framework for 
transportation of energy and gas was a significant impediment 
to development of the regional market.  He noted that 
improving energy efficiency in Uzbekistan, as signatory to 
the Kyoto treaty, created emissions credits which benefited 
Japan.  Japan and the United States should encourage progress 
in the creation of such a framework. 
 
¶11.  (SBU) The stalled delimitation of the Caspian Sea 
remains a barrier to regional trade in hydrocarbons, said DAS 
Feigenbaum.  The United States hopes that the border 
countries will be able to set aside their political 
differences to move ahead with pipeline development.  Noting 
that the situation was especially sensitive for the 
Kazakhstanis, Deutsch told DDG Fukada that the United States 
Trade and Development Agency (TDA) is going to do a 
feasibility study on trans-Caspian pipelines and alternatives 
including liquefied and compressed gas. 
 
Business Development:  Dependent on Local Conditions 
--------------------------------------------- ------- 
 
¶12.  (SBU) Establishing the rule of law is crucial in 
promoting business development, said DDG Fukada.  In addition 
to pushing for legal reforms, Japan has established Centers 
for Human Development in Kazakhstan and Kyrgyzstan.  These 
centers are a great tool for supporting Small and Medium 
Enterprises (SMEs), which need micro-financing and are 
essential to overall progress.  Japan International 
Cooperation Agency (JICA) Second Regional Department Director 
Hiroshi Niino explained that last year JICA conducted a large 
survey of the region,s business environment.  Niino said the 
survey results, which should come out in 2007, will concur 
with concerns about Uzbekistan cooperation or lack thereof. 
 
 
Getting the Right Mix of Donors and Projects 
-------------------------------------------- 
 
¶13.  (SBU) The Central Asia Regional Economic Corporation 
(CAREC) and the Asian Development Bank (ADB) have been 
important partners in regional development, agreed DAS 
Feigenbaum and DDG Fukuda.  The United States is interested 
in increased cooperation with CAREC, and is supportive of an 
ADB proposal to create a CAREC plus 3 framework to do so 
(CAREC plus the United States, European Union, and Japan). 
CAREC interaction with the major market economies would 
provide added weight to the one regional organization that is 
most likely to promote market approaches to development. 
We would welcome thoughts on how we might structure such 
 
TOKYO 00007164  004 OF 007 
 
 
interaction. 
 
¶14.  (SBU) Japan also likes CAREC, stated DDG Fukada.  It is 
a geographically balanced organization, and well structured 
to administer financial assistance, infrastructure 
development, and technical assistance.  The government of 
Japan wants to increase coordination with the United States 
and the European Union, and sees the CAREC plus 3 format as 
an effective way to enhance regional cooperation.  CAREC is 
the most promising framework, agreed MOFA Central Asia and 
Caucasus Division Director Hideki Uyama, who had attended a 
recent CAREC meeting in Urumqi, China.  In addition to using 
CAREC as an aid coordination body, it provides a venue for 
bilateral meetings on the margins to compare strategies. 
 
 
---------------------------- 
JBIC'S VIEWS ON CENTRAL ASIA 
---------------------------- 
 
¶16.  (SBU) Following the morning session, DAS Feigenbaum and 
his delegation met separately at JBIC headquarters with Hara 
Shohei, Director of the Program Division and Division 2 of 
Development Assistance Department IV, and Tankanori 
Shiraishi, Country Officer for Central Asia and the Caucasus 
from Shohei's office.  In addition, Kiyoshi Ishii, Team 
Director of JICA's Central Asia and the Caucasus Team of 
Regional Department II was also present. 
 
¶17.  (U) Hara opened by noting JBIC has been providing 
assistance to Central Asian countries for fourteen years. 
JBIC has identified six key development challenges in the 
region as follows: improving the business environment, 
reducing poverty, developing human resources, modernizing the 
economic and social infrastructure, diversifying industry, 
and accelerating intra-regional cooperation.  Of these, JBIC 
has chosen to focus on three: 
 
-- modernizing the economic and social infrastructure, 
including efforts to achieve economic reform, emphasizing 
effective use of water and energy resources, and greater 
efficiency in the transportation network; 
 
-- human resource development and institutional reform 
through the provision of technical assistance to build 
capacity; 
 
-- accelerating intra-regional cooperation by emphasizing 
effective use of energy and water resources and by assisting 
the development of transportation infrastructure. 
 
¶18.  (SBU) Of the Central Asian countries, JBIC's major 
program is with Uzbekistan, where six projects are being 
financed by Japanese ODA loans.  Five projects are being 
financed in Kazakhstan, two in Kyrgyzstan, and one in 
Turmkenistan.  Hara explained that JBIC plans to focus future 
programs mainly on Uzbekistan and Tajikistan.  Kazahkstan has 
become so wealthy that they no longer need ODA funding. 
Kyrgyzstan is so highly indebted that JBIC cannot make 
further loans.  And the political situation in Turkmenistan 
makes it impractical to plan any projects there at this time. 
 
Tajikistan 
---------- 
 
¶19.  (SBU) Hara noted that although JBIC currently does not 
have any projects in Tajikistan, it was been working with the 
World Bank and ADB and believes the situation in that country 
is likely to improve quickly.  A team from JBIC will visit 
Dushanbe the week of December 11 to evaluate what can be done 
 
TOKYO 00007164  005 OF 007 
 
 
there and characterized Japan's approach at this time as one 
of "cautious entry."  He noted there is no way Japan will 
even try to match China's recent loan of USD 637 million and 
said that an initial commitment of  USD 20M to USD 30M will 
be more realistic.  JBIC is aware of the efforts to develop 
Tajikistan's potential to be a major exporter of hydropower, 
but Hara cautioned that Japan does not have the resources or 
the intention at this time to engage in massive hydroelectric 
or transmission grid projects.  More than likely, Japan will 
elect to co-finance other projects with the World Bank or 
ADB, where the Japanese contribution can achieve a higher 
profile. 
 
¶20.  (SBU) DAS Feigenbaum counseled the Japanese not to let 
the Tajiks distract them with multibillion-dollar projects 
and said the World Bank is willing to focus on smaller 
things. Senior Advisor Deutsch added that Japanese 
contributions as a small participant in larger projects -) 
such as the model transmission project -- would be more than 
welcome.  Hara agreed that whatever JBIC decides to do in 
Tajikistan, it will be working closely with the World Bank. 
 
Uzbekistan 
---------- 
 
¶21.  (SBU) Hara started out by referring to Uzbekistan as 
"our biggest headache."  He explained how JBIC's largest 
program in the region is with Uzbekistan and that it includes 
railway, power, airport modernization, and secondary 
education projects.  He said Uzbekistan is keen to get yen 
loans from Japan, but the slow progress of the projects 
started to date have given the Japanese pause.  No new JBIC 
commitments will be made to Uzbekistan at this time. 
Instead, Japan will focus its assistance on smaller, more 
discrete projects run by JICA.  These include sending 
technical assistance teams to train the Uzbeks how to better 
manage their existing power facilities, one plant at a time. 
Their hope is that as one plant becomes more efficient, it 
will serve as a model for the others.  JICA also conducted a 
brief study last year of possible regional cooperation in the 
water and energy sectors. 
 
--------------- 
JICA'S STRATEGY 
--------------- 
 
¶22.  (U) Following Hara's presentation, Ishii briefed on 
JICA's approach to the region.  JICA's highest priorities for 
the region are: 
 
-- institution-building and human resources development for 
the introduction of market economies; 
 
-- restructuring the social sector, primarily the medical 
sector which has collapsed due to the lack of financial 
resources and access to modern technology; 
 
-- rehabilitating existing infrastructure; 
 
-- promoting regional cooperation. 
 
¶23.  (SBU) JICA's approach to these goals is different in 
each country based on local conditions. In Kazakhstan, where 
the Japanese assess the transition is comparatively 
progressive, emphasis will be on programs that support WTO 
accession and that rehabilitate transportation 
infrastructure.  In Kyrgyzstan and Tajikistan, where 
transition is comparatively progressive but where there is 
risk due to high levels of poverty and debt, attention will 
be paid to rehabilitating the social infrastructure, 
 
TOKYO 00007164  006 OF 007 
 
 
including community-based regional development and poverty 
alleviation programs that foster entrepreneurship.  In 
Uzbekistan, where the Japanese view transition as stagnant, 
JICA will concentrate on capacity building in government 
organizations, rehabilitating transportation infrastructure, 
and improving the Customs function in order to facilitate 
increased regional cooperation.  In order to carry out its 
policies, JICA maintains offices in Tashkent, Bishkek, and 
Dushanbe.  Ishii concluded by noting that JICA hopes to begin 
a trade facilitation program in Central Asia sometime soon 
and would be interested in learning more about U.S. programs 
in this field. 
 
-------------- 
USAID APPROACH 
-------------- 
 
¶24.  (SBU) Following the presentations by Hara and Ishii, 
USAID Central Asia Mission Director Crowley provided a 
briefing on AID's approach to the region.  He explained that 
AID deals with the region on a country by country basis and 
that the types of programs in which AID engages are grouped 
into three categories: economic growth, which includes trade, 
energy, agriculture, business development, water resources; 
investing in people, mainly through programs in the health 
and education fields; and governance/democratization, which 
includes rule of law and media development programs.  He 
noted that the only commonality shared by the five countries 
of the region appears to be their lack of interest in the 
governance/democracy-building programs.  Uzbekistan has been 
very difficult to work with lately, as the government has 
moved to restrict civil society groups and has made operating 
conditions for us very difficult, including placing 
restrictions on visa issuances for our personnel.  We face 
similar problems in Turkmenistan, but not to the same degree. 
 Accordingly, we currently hold out more hope for our 
programs in Kazakhstan, Kyrgyzstan, and Tajikistan, even 
though each continues to have some negative factors.  With 
regard to Kazakhstan, as noted by Hara, the country has 
become very wealthy to the point where it no longer requires 
financial assistance and is, in fact, beginning to co-fund 
our programs there and to help with the selection of local 
grantees.  This is the first time such a thing has taken 
place in an AID program.  And despite the problems 
encountered in Uzbekistan and Turkmenistan, we will continue 
to attempt to work with both countries. 
 
------- 
COMMENT 
------- 
 
¶25. (C) As was the case in several sessions on U.S. and 
Japanese strategic priorities, the opportunity to discuss 
development assistance programs in Central Asia with 
representatives of MOFA, METI, JBIC and JICA was extremely 
beneficial.  All participants agreed there is much to be 
gained by further such engagements and that efforts should be 
made to enhance cooperation among donors.  DAS Feigenbaum 
stressed throughout that, while there inevitably will be some 
competition among outside powers, the primary strategic 
purpose of U.S.-Japan cooperation is not to "compete" with 
Russia or China for its own sake, but rather to give the 
countries of the region more than one choice about who they 
can do business with, to where and by what means they can 
transport their exports, and to whom they can look to for 
assistance.  In short, U.S. policy is not "anti-Russia" or, 
for that matter, anti-anyone.  Rather, we offer an 
affirmative, not negative, vision to the countries of the 
region, and in this sense are simply "anti-monopoly."  Our 
primary goal is to bolster their sovereignty and independence 
 
TOKYO 00007164  007 OF 007 
 
 
by broadening their range of choice.  It is unclear whether 
the Japanese, who still tend to view the region through a 
traditional "Great Game" prism, focused on both Russia and 
China, fully agree.  But what was agreed at these sessions 
was the need to work in closer concert to advance our mutual 
interests in the region, as well as a more globally-oriented 
U.S.-Japan alliance. 
 
¶26. (U) Deputy Assistant Secretary Feigenbaum cleared this 
cable. 
DONOVAN