VZCZCXRO2897
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #0043/01 0090733
ZNR UUUUU ZZH
R 090733Z JAN 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1313
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0270
RUEHBUL/AMEMBASSY KABUL 0377
RUEHNE/AMEMBASSY NEW DELHI 0209
RUEAIIA/CIA WASHDC 0260
RUCPDOC/DEPARTMENT OF COMMERCE WASHINGTON DC 0100
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNS/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 02 DUSHANBE 000043 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON TI
SUBJECT: Birth of Tajik Ag Working Group and Appeal to Donors 
 
¶1. (SBU) Summary: The Tajik government recently convoked the first 
meeting of a new agricultural working group, at which it made a 
number of not entirely convincing statements on agricultural 
reforms, especially in the cotton sector.  Donors urged strict 
requirements on further lending for cotton production.  Although a 
food deficit was not discussed, the Government ended the meeting by 
passing out an appeal to donors to provide it with financial 
assistance to address the impact of the global economic downturn and 
Tajikistan's "food deficit."  End Summary. 
 
 
¶2. (SBU) On December 19, 14 members of the Donor Coordination 
Council (DCC), including USAID, met with the Tajik government's new 
Agriculture Working Group formed to ensure better communication and 
coordination between donors and the government.  The group is 
accountable to Deputy Prime Minister Murodali Alimardon, who is 
responsible for agriculture, and donor coordination.  The Working 
Group will present Alimardon with reports, recommendations and an 
agriculture action plan. Presidential Economic Advisor Matlubkhon 
Davlatov dominated the first 20 minutes of the meeting with a 
presentation on the economic situation, which included GDP growth 
(7.4% in 2008), lower than expected inflation (12.7%), the negative 
impact of the global financial crisis, lower demand for cotton and 
aluminum, falling remittances, the impact of energy problems on the 
production of agricultural inputs (what energy there is will be 
needed for heating), and the low repayments of $40m in government 
cotton loans last summer.  (Press reports indicate only 10-20% of 
the loans have been repaid.)  In light of all of this, at the end of 
the meeting the government handed out an appeal to the donors 
stating, "...the Government of the Republic of Tajikistan hereby 
appeals to the international organizations and country-donors with 
the request to provide emergency financial support to our country in 
order to mitigate the consequences of the global financial crisis 
and avert the escalation of the food deficit in the country." 
Interestingly, the "food deficit" was not discussed in the meeting. 
 
¶3. (U) After addressing the Working Group's organizational structure 
and logistics and defining its priority issues -- debt resolution 
and agricultural sector finance -- the discussion moved to 
agricultural and economic issues.  The government announced that an 
International Monetary Fund (IMF) mission would arrive February 5 to 
make recommendations about future IMF assistance to Tajikistan, and 
a new banking law should be approved in March.  Results of the IMF's 
Staff-Monitored Program (SMP), looking at the health of the Tajik 
economy and government fiscal policy, would be made public soon. 
The Government was on track to meet the SMP's measures but the 
external environment had deteriorated, reinforcing the need for 
domestic reforms. 
 
¶4. (U) The donors expressed serious concerns about the cotton 
financing scheme and its risks to the banking system.  The IMF 
reiterated its warning about the current financing scheme, noting 
that it is the biggest contributor to the banks' liquidity problems, 
especially as repayments are very low. The European Bank for 
Reconstruction and Development (EBRD) said that it was "suicide" to 
continue financing cotton.  The donors recommended that any new 
Qcontinue financing cotton.  The donors recommended that any new 
financing scheme should be targeted to the agricultural sector in 
general, not to any specific crop, farm, investor, region, etc.  The 
Finance Ministry concurred.  Donors emphasized that banks should 
employ commercial standards in making loans. The EBRD's Tajik 
Agricultural Finance Facility (TAFF) program helps banks to make 
assessments and decisions for lending.  Donors also called on the 
Government to remove unofficial pressure on banks to lend for cotton 
only and said no new money should be lent until the $40 million from 
last year was repaid.  The repayment period has been prolonged by 
three months owing to poor market prices; however, the donors noted 
that it is unlikely that prices will go up. 
 
¶5. (U) Donors regard the agricultural sector as a priority and need 
to see that reforms are moving forward.   The group discussed 
evidence that farmers growing non-cotton crops made profits in 2008, 
but were highly doubtful that farmers (as opposed to "investors") 
made a profit on cotton.  The DCC is monitoring the Freedom to Farm 
provision guaranteeing farmers the right to grow the crops of their 
choice; survey results monitoring implementation will be available 
in January.  Davlatov stated, "I guarantee you that where cotton can 
be grown, farmers will want to grow it" and that "we are not going 
to force farmers to grow cotton next year."  Alimardon said the 
Government was serious about improving the profits for farmers and 
that "cotton had nothing to do with politics."  Davlatov clarified 
that 180 million somoni ($52 million) in 2009 budget funds for 
agricultural loans were intended for the entire sector, not just 
cotton.  The government would set up monitoring mechanisms to track 
lending. 
 
DUSHANBE 00000043  002 OF 002 
 
 
 
¶6. (SBU) Comment: It was noteworthy that Davlatov, not Alimardon, 
ran the meeting.  The USAID officer witnessed blatant eye-rolling 
and head shaking by Alimardon while Davlatov spoke.  Most of the 
donors were skeptical about the government's assurances that it 
would not force farmers to grow cotton and that agricultural loans 
this year would not be used exclusively for cotton.  As for the 
financial crisis appeal, most donors have been intensely concerned 
with responding to Tajikistan's food and energy deficit.  The 
Government appears to see the financial crisis as a pretext for 
seeking more cash.  Despite basing the appeal partly on food 
deficits, the Government did not discuss this deficit or how it 
related to agriculture policy reform -- a vivid illustration of the 
frequent refusal of the Tajik government to recognize cause and 
effect. 
JACOBSON