VZCZCXYZ0002
OO RUEHWEB

DE RUEHDBU #0086/01 0140622
ZNY CCCCC ZZH
O 140622Z JAN 08
FM AMEMBASSY DUSHANBE
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 0106
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0013
RUEHBUL/AMEMBASSY KABUL 0018
RUEHML/AMEMBASSY MANILA 0003
RUEHNE/AMEMBASSY NEW DELHI 0007
RUEHKO/AMEMBASSY TOKYO 0002
RUEHVEN/USMISSION USOSCE 0002

C O N F I D E N T I A L DUSHANBE 000086 
 
SIPDIS 
 
SIPDIS 
 
FOR SCA/CEN 
 
E.O. 12958: DECL: 01/14/2018 
TAGS: EFIN EAGR PREF TI IMF
SUBJECT: TAJIKISTAN PLEADS FOR HELP TO RESOLVE 
SELF-INFLICTED COTTON FINANCE CRISIS 
 
REF: 07 DUSHANBE 1753 
 
 ¶1.  (SBU) Summary:  President Rahmon's top policy advisors, 
Erkin Rahmatulloev (Foreign Affairs) and Matlubkhon Davlatov 
(Economic Affairs), requested a meeting with the Ambassador 
January 4 to smooth the way for the Tajik delegation's 
meetings with International Monetary Fund and World Bank 
officials in Washington January 14-16.  Davlatov will lead 
the official Tajik delegation to Washington to apologize to 
the Fund for misreporting on prior programs (reftel) and to 
secure a new financing facility.  A new Fund program is 
essential, according to Davlatov, in order to secure 
commercial financing for this year's cotton crop and protect 
livelihoods of Tajikistan's impoverished farmers.  Davlatov 
asked for assistance in arranging the delegation's meetings 
with State and Treasury officials prior to their Fund and 
World Bank meetings in order to smooth the way with the U.S. 
Executive Director for the Fund.  Central Bank Chairman 
Alimardonov followed up by briefing Embassy staff about 
efforts "already underway" to reform the agricultural sector 
here.  Alimardonov is the likely fall guy if the Tajik 
government fails to garner the Fund's approval for a new 
program, or if the Fund forces extremely strict conditions on 
Tajikistan.  End summary. 
 
Davlatov Pleads for U.S. Sympathy and Support 
--------------------------------------------- 
 
¶2.  (SBU) Foreign Policy Advisor Rahmatulloev invited the 
Ambassador to an urgent meeting January 4.  He turned the 
meeting over to Economic Policy Advisor Davlatov, who 
requested U.S. support for the January 14-16 Tajik finance 
delegation to Washington.  Davlatov delivered his briefing, 
painting a bleak and over-simplified picture of the coming 
agricultural cycle, should Tajikistan be unable to secure 
adequate financing.  Tajikistan, he explained, is still in 
the early stages of transition to a market economy, and Tajik 
farmers remain poor and dependent on cotton.  Without 
adequate financing, the farmers would be unable to plant 
either cotton or any other crops.  He said that there are 
many places in Tajikistan where cotton is still the most 
profitable crop.  The Ambassador pointed out that the 
investors and "futurists" -- not the farmers -- were reaping 
any profits and that those who pocketed such profits over the 
years should be putting up their own resources to resolve 
this crisis. 
 
¶3.  (SBU) Davlatov said a new agreement with the 
International Monetary Fund was essential in order to secure 
commercial financing for this year's crop cycle.  (Note: Most 
farmers should already have plowed their land for cotton in 
November and December, with planting taking place typically 
from February through March.  End note.)  According to 
Davlatov, even the Chinese Government indicated that it might 
condition future concessional lending on Tajikistan being in 
good standing with the Fund.  We later asked the resident 
Chinese Charge whether official financial assistance from 
Beijing would be conditioned on a Fund program.  He 
acknowledged that China is concerned about the financial 
situation in Tajikistan but stopped short of disclosing any 
conditionality. 
 
¶4.  (SBU) Davlatov repeated several times that Tajikistan 
would be ready to accept any conditions the Fund demanded. 
Qwould be ready to accept any conditions the Fund demanded. 
He acknowledged that Tajikistan had misreported to the Fund 
(six times, reminded the Ambassador) and placed the blame for 
those inaccurate reports on Central Bank Chairman Alimardonov 
who was not present.  Davlatov explained that he was 
especially concerned about the U.S. Executive Director to the 
Fund, Meg Lundsager, who wields much influence at the Fund 
and is "watching Tajikistan very closely."  Davlatov's 
delegation to Washington will include Central Bank Chair 
Alimardonov and Deputy Finance Minister Nuraliev (married to 
President Rahmon's daughter Ozoda) from Dushanbe, along with 
Washington-based Tajik Ambassador Shirinov and Tajik advisor 
to the Fund and World Bank, Zavkijon Zavkiev. 
 
¶5.  (SBU) The Ambassador emphasized that given Tajikistan's 
track record of misreporting to the Fund and dragging its 
feet on agricultural reforms, we and the international 
financial institutions will correctly demand to see concrete 
actions, not just more verbal reassurances.  When Davlatov 
 
said that addressing cotton sector reform was a presidential 
priority, the Ambassador said those priorities were not as 
readily apparent to observers as the new presidential palaces 
and dachas costing hundreds of millions of dollars.  Davlatov 
seemed ready for the comparison, saying he remembered the 
Ambassador's previous remarks about ostentatious government 
funded projects and lavish spending. 
 
¶6.  (SBU) Visiting European Commission Ambassador van der 
Meer recounted to us his own meeting with Davlatov three days 
later covering the same issues.  Van der Meer told Davlatov 
bluntly that "cotton is not the future of the country" and 
Europe would not support a bail-out of the cotton debt. 
 
 
Meeting with Central Bank Chairman Alimardonov 
--------------------------------------------- - 
 
¶7.  (SBU) On January 11 Bank Chairman Alimardonov called us 
to the Central Bank on short notice, to brief us about the 
Tajik Government's efforts to restructure the cotton sector 
and to promote "freedom to farm" (allowing farmers to grow 
crops other than cotton).  He explained to us that farmers 
would from now on be free to work with whatever banks and 
buyers they wished and that legislation defining their land 
use rights would be worked out within the month of January. 
Note: Presidential Decree 111 already established "freedom to 
farm" principles last year, but government officials, 
especially at the local levels, continued to intervene to 
enforce cotton production quotas.  The donor community in 
Dushanbe and the International Financial Institutions 
generally give the government poor marks for demonstrating 
adequate political will to reform the agricultural sector. 
End note. 
 
¶8.  (SBU) Alimardonov launched into a plea for financial 
assistance to get Tajikistan out of its cotton debt 
predicament.  He acknowledged that the Central Bank, through 
its misreporting and ill-advised loan guarantees (reftel), 
had gotten Tajikistan into its current mess.  He repeated 
Davlatov's message that Tajikistan would accept "all 
conditions" imposed by the Fund in order to obtain financial 
support to pay its debts -- including restructuring of the 
Central Bank, its rules, and its Chairman.  He echoed 
Davlatov's talking points, saying this was the president's 
position, not just Alimardonov's.  He said that cotton debt 
was the biggest problem Tajikistan faced right now, and that 
the Central Bank's disastrous involvement in the cotton 
sector was generally counter-productive.  Tajikistan is on 
the edge of the abyss if it could not resolve its cotton debt 
issue, he said, illustrating his point by rolling a pen 
("that's us") off the edge of the conference table.  PolEcon 
Chief advised Alimardonov that, given the history of 
misreporting and misgovernance, he should expect difficult 
discussions and tough conditions from the Fund and World Bank 
in Washington.  Alimardonov nodded contritely. 
 
¶9.  (C) Separately, PolEcon Chief received a call on January 
11 from Hans Waldren of the Asian Development Bank in Manila. 
 Waldren worked for five years in Dushanbe for the Asian 
Development Bank and the Fund.  He called "in a personal 
capacity" to suggest that a basic condition for any Fund 
bailout of Tajikistan be that Tajikistan accept a non-Tajik 
Qas Central Bank Chairman for a period of five years.  Waldren 
said that his experience and Tajikistan's track record of 
repeated Central Bank misreporting and misfeasance convinced 
him that any Tajik, no matter what his level of competence, 
would eventually cave in to pressure from President Rahmon to 
misuse Central Bank funds for pet presidential projects or to 
bankroll economically unsound policies such as financing 
cotton quotas.  In short, Waldren said, the current debt 
crisis would be repeated if a Tajik remained Central Bank 
Chairman.  Waldren said he discussed this idea with the 
Fund's regional director on January 10th, and that the 
regional director supported the idea.  He also planned to 
raise it with the Australian Executive Director at the Fund. 
(Waldren is Australian.)  He called us because he sought U.S. 
support for this condition, as the United States "holds the 
whip" at the Fund.  The British and Swiss Development 
representatives in Dushanbe later told us that Waldren had 
contacted them too to seek their support for a non-Tajik Bank 
Governor.  They favored the idea. 
 
 
¶10.  (C) Comment: Alimardonov's neat gesture of pushing his 
pen off the table probably applies as much to him personally 
as to Tajikistan overall.  It appears he is being set up as 
the fall guy for the Government's cotton debt problem. 
Alimardonov certainly is an apt candidate for that role, 
given his signature is on the falsified Central Bank 
reporting to the Fund.  Like most high-level officials here, 
Alimardonov is rumored to be personally corrupt.  He owns 
large areas of agricultural land and horse farms -- often 
used to entertain the president's official guests -- 
reputedly paid for by corrupt dealings in the Central Bank. 
But Hans Waldren gets to the heart of the problem, which is 
President Rahmon's desire to use Government resources for 
personal projects and lavish entertaining, and the 
irresistible pressure he can place on the Central Bank and 
any other institution in Tajikistan with substantial sums of 
money.  A non-Tajik Central Bank Chairman would be a very 
useful measure, as would conditioning any debt assistance on 
a halt to presidential show projects.  Both conditions would 
be but very difficult for President Rahmon to accept. 
HUSHEK