VZCZCXRO7383
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #1518/01 3511204
ZNR UUUUU ZZH
R 161204Z DEC 08
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1262
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0258
RUEHBUL/AMEMBASSY KABUL 0355
RUEHNE/AMEMBASSY NEW DELHI 0199
RUEHBJ/AMEMBASSY BEIJING 0236
RUEAIIA/CIA WASHDC 0253
RUCPDOC/DEPARTMENT OF COMMERCE WASHINGTON DC 0093
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNS/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 DUSHANBE 001518 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD PGOV ELAB TI
SUBJECT: Crucial Remittances to Tajikistan Will Slow; But How Much? 
 
Ref A: Dushanbe 1502 
 
¶1. (SBU) Summary: Remittances from relatives working abroad, 
particularly in Russia, form a crucial source of income for many 
families in Tajikistan, which in turn helps maintain economic and 
political stability in this poor and historically fractious country. 
 Many here are worried about whether the world financial crisis will 
result in layoffs of Tajik workers and reduced remittances.  A key 
factor will be what happens in the Russian construction sector, 
where the majority of Tajik expatriates work.  The International 
Monetary Fund (IMF) predicts remittance flows in 2009 will remain at 
this year's record level of $2.5 billion.  Other analysts question 
the IMF's projections, pointing out that remittances are already 
dropping off.  The Russian government's recent decision to halve the 
quota on foreign labor may not have as serious an effect as some 
fear.  End summary. 
 
IMF, National Bank Predict Record Remittances in 2009... 
 
¶2. (U) Representatives of international financial institutions and 
government officials alike recognize that remittances from Tajiks 
working abroad represent a crucial source of income for Tajikistan. 
Indeed, several experts have said that during last winter's 
disastrous food and energy crisis, remittances, primarily from Tajik 
workers in Russia, were the lifeline that kept many families alive. 
Others point to the importance of remittances in maintaining the 
stability of Tajikistan's currency; bringing foreign reserves into 
the country; paying for imports, mainly food; and reducing strains 
on the state budget.  For these reasons, the effect of the world 
financial crisis on remittance flows is a pressing concern for 
financial analysts, donors, and government officials in Dushanbe. 
 
¶3. (U) At a recent briefing for the international donor community in 
Dushanbe, IMF Mission Chief for Tajikistan Axel Schimmelpfennig 
provided good news: he projected that remittances to Tajikistan from 
citizens working abroad would remain steady at $2.5 billion in 2009, 
matching this year's record figure.  The figure, a 50% increase over 
2007 remittance levels, equals over half of Tajikistan's estimated 
$4.8 billion GDP for 2008.  While Schimmelpfennig cautioned that 
some of the reported increase in 2008 likely was due to improved 
financial reporting rather than an actual growth in the amount of 
money flowing across the border, the IMF was confident that 
remittances were growing steeply in real terms.  In a subsequent 
discussion with Econoff, IMF Resident Representative Luc Moers 
clarified that the $2.5 billion figure actually included both flows 
into Tajikistan -- $2.3 billion -- and out of it -- $200 million. 
Minister of Finance Shavkat Sahibov told Econoff that remittance 
levels may be even lower, because the $2.5 billion figure includes 
not just transfers from Tajiks working abroad but also some income 
from traders who send profits home as remittances in order to avoid 
paying taxes. 
 
¶4. (SBU) Schimmelpfennig said that in making its projection, the IMF 
took into account expected slowdowns as a result of the world 
financial crisis in the Russian construction sector and other areas 
where Tajik guest workers are concentrated.  In response to some 
doubts raised by members of his audience, Schimmelpfennig agreed 
Qdoubts raised by members of his audience, Schimmelpfennig agreed 
that the estimate might have to be revised downwards, but that some 
studies the IMF has conducted indicate that, in general, remittances 
tend to be driven more by labor supply than demand, and are thus 
surprisingly resilient in the face of financial shocks.  The 
implication is that Tajiks who lose work in Russia's construction 
sector, for instance, will seek employment in other sectors or even 
other countries in order to continue to send money home. 
 
¶5. (SBU) Deputy Director of the National Bank of Tajikistan Jamshed 
Yusupov agreed that the world financial crisis was not likely to 
have a major impact on remittances.  In addition to the reasons 
outlined by Schimmelpfennig, he noted that many Tajiks are employed 
abroad in non-construction sectors, such as agriculture, that are 
less volatile.  Even in construction, he said, the situation might 
not be so dire: while Moscow and St. Petersburg may see slowdowns, 
other areas of Russia, such as the Urals, continue to be dynamic, 
and Tajiks would move as necessary to find work.  Yusupov added that 
Tajikistan's banking sector remained isolated from the economic 
crisis, since only 1% of deposits in Tajik banks were held in 
foreign currencies.  Foreign investment in Tajikistan's banks 
totaled only 32%, and the somoni continued to trade in a very stable 
range against the dollar and other major currencies. 
 
... But Others See Cause for Alarm 
 
DUSHANBE 00001518  002 OF 003 
 
 
 
¶6. (SBU) Several attendees at the IMF briefing expressed surprise at 
the IMF's robust projection for 2009 remittances.  Charlotte Adriaen 
of the European Commission, for example, said the financial crisis 
had already had a profound effect on the construction sector in 
Russia.  She had heard anecdotal reports from Tajik workers that 
entire construction projects had halted, forcing foreign laborers to 
return home.  Rudolph Schoch, of the Swiss Agency for Development 
and Cooperation, was equally skeptical of the IMF's numbers, noting 
to Econoff that statistics had already begun reflecting the slowdown 
in Russia.  Whereas remittances over the first nine months of 2008 
were 70% higher than the equivalent period of 2007, for the month of 
October -- the latest for which figures were available -- growth had 
slowed dramatically to only 18% compared to the same month last 
year. 
 
¶7. (SBU) Chiara Bronchi, the World Bank's Country Manager for 
Tajikistan, agreed that the IMF's predictions were too high.  She 
said there was simply no way that the Russian construction sector 
would not significantly contract.  Although hard data would be slow 
to emerge, she said the World Bank's own anecdotal observations 
confirmed those of Adriaen.  Flights into Dushanbe not only from 
Russia, but also from cities such as Istanbul, were completely full; 
some two-thirds of the travelers were said to be Tajik workers 
returning home.  (She added that she was considering asking Tajik 
Air to provide a precise breakdown of its passengers so she could 
look at this question more closely.)  In addition, many Tajiks 
informally surveyed by World Bank staff reported that their salaries 
in Russia had been delayed or not delivered at all.  Considering all 
of the evidence, Bronchi said the world financial crisis would have 
a profound effect on Tajikistan (ref A). 
 
¶8. (SBU) Even IMF Resident Representative for Tajikistan Luc Moers 
acknowledged to Econoff that he personally found the official IMF 
remittance projection for next year a little unlikely.  He said, 
however, that skeptics should be cautious about dismissing the 
projections out of hand.  IMF's Moscow office was predicting that 
despite the worldwide financial crisis Russia would see growth in 
2009 of 3.5%.  Although a decline was predicted in the construction 
sector, it would be a relatively small one: the Russian government 
would use its enormous stabilization fund to ensure that major 
construction projects continued.  Thus Russia's appetite for Central 
Asian labor in the construction sector, while it might cool 
somewhat, would not evaporate. 
 
¶9. (SBU) Moers acknowledged that growth in remittances had slowed 
recently, but pointed out that 18% growth was still impressive 
growth -- and only seemed weak when compared to the astronomical 70% 
for the first nine months of the year.  Moers said his own informal 
sense was that most Tajiks thought that, as difficult as conditions 
were in Russia, they were still better than in Tajikistan, and 
Tajiks working abroad would continue to search for and find 
opportunities to make and send home money.  He thus cautioned 
against expecting a major repatriation of Tajik workers. 
 
Cut in Russian Guest Worker Quotas May not Matter 
 
¶10. (U) In his recent "direct address to the Russian people," 
Q10. (U) In his recent "direct address to the Russian people," 
Russian Prime Minister Vladimir Putin announced that in view of the 
financial crisis the Russian quota on foreign guest workers should 
be halved to preserve more employment opportunities for Russians. 
The Ministry of Health and Social Development (Minzdrav) has 
prepared an order to cut the number of "permissions" granted to 
foreign workers from 4 million (a figure Putin signed into law on 
November 7) to 2 million.  An article in the Russian newspaper 
Kommersant noted that the reduction would mean that the annual quota 
would be filled early in the year, forcing Russian employers to turn 
foreign workers away as the year progressed. 
 
¶11. (U) While this announcement has led to some concern here in 
Dushanbe, there are indications that its effects may be more 
rhetorical than substantive.  In announcing the cut, Minzdrav used 
language that preserved the ability to add more permissions if 
conditions warranted.  Shortly afterword, Putin specified that the 
cut was "temporary."  Beyond this, however, it is not clear how 
important the quotas are in the first place for Central Asians.  CIS 
citizens do not require a visa to enter Russia, and it is reportedly 
fairly easy to obtain work without an official work permit.  It is 
widely believed that the majority of foreigners working in Russia 
are doing so illegally -- 10 or 11 million according to some 
estimates. 
 
DUSHANBE 00001518  003 OF 003 
 
 
 
 
¶12. (U) Although Russian quotas on foreign labor have fluctuated 
dramatically due to various political concerns, on balance Russian 
labor policy has favored making it easy for CIS citizens to fill 
menial and low-paid jobs.  In 2007 the quota was 6,000,000; 
according to some experts, it was not even filled.  Then in 2008 it 
was reduced to just 1.8 million.  Once it became clear that this was 
inadequate, however, it was later expanded to 3.4 million.  (Note: 
these are the quotas on "permissions to work for foreigners not 
requiring a visa" -- i.e., CIS citizens.  There is a separate, much 
smaller, quota on "invitations to work" for non-CIS citizens.  By 
all accounts these workers -- many of them from China, North Korean, 
and Southeast Asia -- are in much higher demand because of their 
skills and experience, and this quota is said to fill rapidly.  End 
note.) 
 
¶13. (SBU) Comment: The IMF "supply-side" theory of remittances 
strikes most analysts here as dubious.  While Luc Moers' observation 
-- that as bad as things are in Russia, they are still better than 
in Tajikistan -- will remain true for many Tajiks, it does not mean 
that opportunities and salaries in Russia will remain at current 
levels.  While most here agree that Tajikistan is relatively 
insulated from the world economic crisis (ref A), a reduction in 
remittances could have a very serious effect on Tajikistan's 
economy, and on the ability of individual households to get through 
the winter.