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UNCLAS SECTION 01 OF 02 DUSHANBE 000239 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EAID PGOV PHUM TI
SUBJECT: DONORS TRY TO SPELL RELIEF IN TAJIKISTAN'S COTTON SECTOR 
 
REF: A) DUSHANBE 224  B) 06 DUSHANBE 2247 
 
DUSHANBE 00000239  001.2 OF 002 
 
 
¶1.  (SBU)  Summary:  World Bank-contracted agricultural 
economist Garry Christensen outlined a new World Bank approach 
to resolving Tajikistan's $300 million cotton debt crisis -- an 
approach which could anger many farmers, but could garner the 
support of the Tajik government and investors.  Infighting 
between the Asian Development Bank and the World Bank continues 
to hinder progress on the cotton reform "Roadmap," but agreement 
between the two development banks on debt resolution signals a 
giant leap forward.  The good news for donors is that the 
development banks are not asking the U.S. or other donors for 
additional assistance to fund the process.  End Summary. 
 
"One-size-fits-all" approach 
 
---------------------------------------- 
 
¶2.  (SBU)  Christensen told EconOff in a private meeting 
February 9 that the World Bank and Asian Development Bank have 
jointly decided to dispatch with the farm-by-farm approach to 
the cotton debt employed for the last year, and proceed with a 
"flat-rate" debt relief mechanism, assigning a fixed rate of 
debt payments per hectare of land.  This means that each farmer 
would pay $50 per hectare each year, for example, on all 
irrigated land, regardless of what crop they continue to grow in 
the future.  Farmers are likely to deem this method inherently 
unfair, as it punishes farmers who have been steadily paying 
down their debt.  These farmers may rightly dispute the new debt 
plan.  However, the lack of financial records and poor 
cooperation from lending institutions and farmers doomed the 
individualized debt repayment plan. 
 
¶3. (SBU)  The farmers will pay into a new independent agency 
that will take charge of the debt.  The agency will then pay the 
investors, among them the "futures" companies that have indebted 
many Tajik farmers for years by forcing them to take credits for 
seeds, fertilizer and fuel, and preventing the farmers from 
selling their cotton harvests on the free market.  De-linking 
the borrowers and lenders -- i.e., breaking the corrupted client 
relationship between producers and investors -- is a key 
starting point to cotton sector reform.  The World Bank and 
Asian Development Bank will provide start-up capital to the 
agency.  As part of the initial agreement, the investors, 
including futures companies, must agree to forgive a large 
portion - roughly half - of the supposed debt.  The length of 
time farmers will need to pay down the debt will depend on how 
much the investors agree to write off from the overall amount. 
The program foresees providing farmers with increased land 
rights as an incentive to cooperate with the debt reduction 
program.  The ongoing USAID Land Reform project will play a key 
role in reshaping land-use rights legislation to enable this 
process. 
 
¶4.  (SBU) Tajikistan's futures companies will likely embrace the 
plan, because it means they will recover at least part of the 
funds they claim are owed them.  They understand that under the 
current circumstances, farmers have no chance at repaying more 
than a fraction of the $300 million they borrowed for crop 
inputs.  In cotton-dependent districts, futures companies exert 
enormous influence and power, pressuring farmers and local 
officials to forego alternate crops and grow cotton, no matter 
what the consequences for the farmers' financial position. 
During a recent visit to Panj district along the Tajik-Afghan 
border (Ref A), PolOff witnessed giant mounds of unprocessed 
cotton piled up at the Panj cotton ginning facility.  The 
district chairman cancelled his long-planned meeting with PolOff 
to meet instead with the head of the only futures company that 
invests in Panj, who made an impromptu trip south at the same 
time.  Other local officials were reluctant to discuss the 
futures company's role, except to admit it would be better if 
the farmers could borrow money, instead of seeds and fuel at a 
rate set by the investor. 
 
We Need a Roadmap for Donor Cooperation 
 
 
DUSHANBE 00000239  002.2 OF 002 
 
 
--------------------------------------------- ------------------- 
 
¶5.  (SBU)  The Asian Development Bank presented a draft cotton 
sector roadmap to the government December 9.  Contrary to 
previous reporting (Ref B), Christensen informed EconOff that 
the World Bank never actually signed off on the Asian 
Development Bank version of the roadmap, which all other donors 
approved.  The government responded positively to the roadmap, 
which outlines government reforms and donor assistance 
activities necessary to reform the cotton sector.  Disagreement 
among donors also exists on the future role of the so-called 
"Independent Commission" -- the advisory body originally created 
to make recommendations on cotton sector reforms.  The World 
Bank supports the government which wishes to close down the body 
as quickly as possible; while other donors see a continued role 
for the commission in overseeing implementation of the roadmap. 
Continued bickering amongst donors puts reforms at risk. 
Without a united front among donors, the government may be 
inclined to ignore the conditionality tied to the more difficult 
reform efforts under the roadmap. 
 
The World Bank Pushes On 
 
----------------------------------------- 
 
¶6. (SBU)  Although the World Bank has not signed off on the 
Roadmap, it is implementing a $15 million project in support of 
the cotton sector reforms.  Unreported and closely-held aspects 
of the World Bank project include a credit line to lure 
international investment into ginning operations; seed 
processing linked to ginneries; and International Finance 
Corporation investment in four districts in the Khatlon region. 
The World Bank is considering sending Gerry Boyle as an interim 
presidential advisor on cotton, per President Rahmonov's request 
(Ref B).  Boyle serves as a professor at the National University 
of Ireland and has worked as a presidential advisor on 
agricultural economics in Ireland.  The project will not develop 
producer associations as initially envisioned, focusing instead 
on debt resolution, policy reform, and public awareness of the 
debt resolution program.  The $15 million program does not 
include the funds for the debt resolution component, which the 
World Bank and Asian Development Bank will try to fund 
separately. 
 
¶7. (U)  Comment:  After the development banks submit their debt 
resolution plan to the government for review, the government 
will present the plan to the Independent Commission, which is 
when sparks should really fly.  As the dysfunctional Panj 
District farming situation shows, major changes are needed to 
reform the cotton sector.  Thus, while the plan is far from 
perfect, it represents Tajikistan's best chance to rid itself of 
this lingering cotton debt.  End Comment. 
JACOBSON