VZCZCXRO6710
RR RUEHLN RUEHVK RUEHYG
DE RUEHDBU #0517/01 1050753
ZNR UUUUU ZZH
R 140753Z APR 08
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 0395
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0129
RUEHIL/AMEMBASSY ISLAMABAD 0102
RUEHBJ/AMEMBASSY BEIJING 0067
RUEHNE/AMEMBASSY NEW DELHI 0075
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 DUSHANBE 000517 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR SCA/CEN 
 
E.O. 12958:  N/A 
TAGS: EFIN ETRD EINV ECON PREL PGOV TI
SUBJECT: Tajikistan: Economic Tour de Table 
 
¶1. (U) Summary: Treasury Attache Tom Lanier's March 24-31 visit 
highlighted several challenges the country's financial institutions 
and large enterprises face.  Meetings with government officials, 
international organizations, and business leaders showed the economy 
in poor shape, but not a total lost cause.  The bad news includes: 
incompetent bureaucracy, convoluted fiscal management, 
non-transparency, a failing agricultural sector, remnants of a 
closed and centrally-run economy, a debilitating debt burden, loss 
of international credibility, and stalled economic reforms.  More 
positively, there were glimmers of hope in the small and medium 
scale private sector, the new leadership of the National Bank, and 
potential investment opportunities in mining and hydropower.  End 
Summary. 
 
Ministry of Finance - Contrition 
-------------------------------- 
 
¶2. (U) Minister of Finance Safarali Najmuddinov admitted that the 
government had made "many, many" mistakes and blamed inexperience 
for slowing Tajikistan's transition to a free economy.  Najmuddinov 
promised more transparency following the revelations about the 
cotton debt problem and hoped this would attract more investments 
and loans, though he did not appear to fully understand the types of 
debt the government was taking on.  It was also not clear whether 
the loan guarantee terms that the National Bank had contracted with 
foreign banks had been shared with the Ministry of Finance. 
Najmuddinov explained that the budget deficit, forecasted to be 2.4% 
of GDP, would be covered via privatizations, the issuance of 
Treasury bills, and excess cash reserves held at the National Bank. 
 
 
National Bank of Tajikistan - Independence Days 
------------------------------------------ 
 
¶3. (U) New Chairman Sharif Rahimzoda assured us that the National 
Bank would be more independent under his leadership.  Rahimzoda, who 
has been on the job for two months, did not impress us with 
extensive knowledge of general central bank issues, but he did 
acknowledge the need for better reporting, transparency, monetary 
policy, and asset and liability management.  Rahimzoda seemed eager 
to rebuild the Bank's lost credibility after the IMF misreporting 
scandal under previous Chairman Murodali Alimardon (now the Deputy 
Prime Minister responsible for the cotton sector).  Lanier 
recommended that the Tajik National Bank follow the footsteps of 
other central banks and seek legal representation from an 
international firm.  Lanier expressed concern that the National 
Bank's net level of reserves was too low at only $70-80 million 
(total reserves are $320 million). 
 
Presidential Advisor Davlatov 
----------------------------- 
 
¶4. (U) Matlubkhon Davlatov, the State Economic Advisor (and rumored 
Uncle) to President Rahmon, expressed gratitude for U.S.-funded 
assistance programs, and for the bridge at Nizhny Pyanj connecting 
Tajikistan and Afghanistan.  He said he was focused on avoiding 
another power and food crisis next winter (without giving 
specifics), asked for another bridge, and for a break on the 
repeated visa applications he has to make for each trip to the 
United States.  (Note: Based on reciprocity, Tajik diplomats receive 
single entry visas; the Embassy has encouraged the Tajik Foreign 
Ministry to issue multiple entry visas instead.) 
 
TALCO - New Line of Business 
---------------------------- 
 
¶5. (U) TALCO, the behemoth state-owned aluminum company, has entered 
Q5. (U) TALCO, the behemoth state-owned aluminum company, has entered 
the energy sector, according to Commercial and Financial Director 
Sherali Kabirov.  TALCO recently purchased a $15 million heating 
station project near Dushanbe and a $25 million power station in 
Turkmenistan.  Kabirov said TALCO hoped to reduce the $350-400 
million in yearly transport costs of raw material inputs for its 
aluminum plant, by developing mining in Tajikistan.  Kabirov was 
adamantly opposed to privatization of TALCO, citing the need for 
strong management.  He said TALCO's leadership reports directly to 
the President.  When asked why TALCO was entering the power 
industry, he said it was at the President's order.  Kabirov 
emphasized that TALCO paid a large part of the government budget, 
but pointedly declined to provide specific figures.  Nor did he 
acknowledge that state-owned Barki Tojik provides subsidized 
electricity to TALCO. 
 
World Bank - Upside Down 
------------------------ 
 
DUSHANBE 00000517  002 OF 003 
 
 
 
¶6. (SBU) Lanier met with Chiara Bronchi, recently arrived Country 
Manager for the World Bank.  Ms. Bronchi expressed guarded optimism 
about the economic situation.  She said that while the economy was 
"upside down," now was the time to push for reform.  Ms. Bronchi 
criticized the command-and-control cotton sector supported by 
"messy" financing, but noted that at least the quality of the cotton 
was good.  She commented on the potential of the energy sector, but 
worried that the urgent need to maintain existing systems 
overshadowed new projects.  She questioned the likelihood of 
obtaining an estimated $400-500 million required for the 
rehabilitation of the Nurek dam.  The dam is sinking, and the 
turbines need to be restored. 
 
IMF - the Dog Chases its Tail 
----------------------------- 
 
¶7. (SBU) The IMF Resident Representative, Lucas Moers, warned that 
expectations of the IMF-sponsored audit of the National Bank (not 
likely to take place before the end of the year) may be too high 
since it would be based largely on information provided by the Tajik 
Government itself, which would likely be limited.  Moers said 
National Bank reforms should include increased independence from the 
Ministry of Finance, a board with representatives that are not 
affiliated with the political establishment, and rules that 
explicitly define conflicts of interest.  On a macroeconomic level, 
Mr. Moers said that Tajikistan must prioritize agricultural sector 
reform.  Ideally the government should go after the 
politically-connected cotton investors, but he joked that that would 
be like a "dog chasing its tail." 
 
KazCommerce Bank 
---------------- 
 
¶8. (U) KazCommerce's Board Chairman, Rashid Saidov, told Lanier that 
aside from the difficulty of obtaining a license from the National 
Bank (received on January 24, 2008), the company had not encountered 
significant government interference.  KazCommerce Bank, the first 
major foreign commercial bank to operate in Tajikistan, will 
initially target trade finance and corporate clients and later small 
and medium enterprises.  Saidov claimed that KazComemmerce Bank 
would not conduct business with politicians who have their own 
companies or extend credit to state-owned companies, but then later 
in an apparent contradiction admitted that KazCommerce had loaned 
$12 million to TALCO [Note: KazCommerce was also the largest 
provider of government-guaranteed loans to cotton investors in the 
recent Central Bank/IMF misreporting scandal].  Saidov said that 
high interest rates in Tajikistan were favorable for KazCommerce, 
but noted problems such as the lack of investment capital, the 
absence of a securities market, and poor currency exchange 
facilities. 
 
Somon Capital 
------------- 
 
¶9. (U) The Executive Director of Somon Capital, Michael Pedersen (of 
Denmark), told us that Tajikistan had excellent investment 
potential, but noted several major obstacles to investors.  He said 
the largest impediment to business development was corruption and 
vested interests.  In order to attract foreign investment the 
government must sign the New York Convention (on the Recognition and 
Enforcement of Foreign Arbitral Awards) and pursue a sovereign 
rating.  Nine Tajik government ministers met with representatives 
from Moodys and Standard & Poor on February 7.  Unfortunately since 
the IMF misreporting scandal, progress on a sovereign rating has 
Qthe IMF misreporting scandal, progress on a sovereign rating has 
stalled. 
 
Comment 
------- 
 
¶10. (SBU) Lanier arrived after the winter weather had abated, but he 
was still witness to a troubled economic situation.  He was 
encouraged, however, to find that the new Central Bank chairman 
seemed more independent-thinking than his predecessor.  The news 
from TALCO that it is entering the energy sector is another sign 
that the President clings to Soviet-style central planning.  As the 
World Bank and IMF said, if the economy is to avoid serious decline 
the government must turn around its failed agricultural 
(particularly cotton) policy, reduce government interference in the 
private sector, improve fiscal transparency, implement land reform 
laws, and establish free economic zones.  Basic steps like signing 
the New York Convention and seeking a sovereign rating would 
increase Tajikistan's credibility for potential investors; but 
taking these steps will upset vested interests.  End Comment. 
 
DUSHANBE 00000517  003 OF 003 
 
 
 
JACOBSON