VZCZCXRO9751
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #1113/01 2750446
ZNR UUUUU ZZH
R 020446Z OCT 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 0780
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0256
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHDBU/AMEMBASSY DUSHANBE 1640

UNCLAS SECTION 01 OF 03 DUSHANBE 001113 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: EAID ECON EINV PREL TI
SUBJECT: TAJIKISTAN NAMED TOP REGULATORY REFORMER -- NOW FOURTH-WORST 
IN ASIA 
 
REF: DUSHANBE 877 
 
DUSHANBE 00001113  001.2 OF 003 
 
 
¶1. (SBU) Summary:  Tajikistan has been named a "top 10 
regulatory reformer" by the World Bank and International Finance 
Corporation (IFC), after improving in five of the ten areas the 
Bank uses to compute its annual "Doing Business" rankings. 
Tajikistan now ranks 152 out of 183 countries, up from 159 out 
of 181 countries last year.  It remains the fourth worst country 
in Asia for business.  Improvements were made in the categories 
"protecting investors," "ease of getting credit," "starting a 
business," "closing a business," and "dealing with construction 
permits."  According to an IFC economist here, some improvements 
are genuine, but others are only skin deep.  She disputed some 
of the conclusions reached by the Doing Business assessment team. 
 
¶2. (SBU) Summary continued:  The single biggest improvement this 
year came too late to be considered in the rankings.  With 
assistance from USAID, Tajikistan has implemented a 
comprehensive single window business registration process.  The 
new process, after being unexpectedly rolled out six months 
earlier than originally planned, is doing well, according to an 
EU-funded consultant.  It reduces the cost of registering a new 
business by over 90% and the time by well over a month.  There 
remain some challenges, including squabbling government 
ministries, technical difficulties, and a Soviet-era 
predilection for demanding more documentation from applicants 
than is legally required.  End summary. 
 
MOVING ON UP? 
 
¶3. (U) Tajikistan recently was named one of the world's "top 10 
regulatory reformers" this year by the World Bank and the 
International Finance Corporation (IFC).  The two organizations, 
members of the World Bank Group, collaborate on the annual 
"Doing Business" rankings that assess countries' regulatory and 
business environments.  Tajikistan improved in five of the ten 
areas examined by the Doing Business team, lifting its overall 
ranking twelve spots to 152 out of 183 countries surveyed. 
(Note:  Last year Tajikistan ranked 159 out of 181 countries. 
That ranking was (confusingly) recalibrated this year to 164 out 
of 183, allegedly to provide comparability with this year's 
rankings.  End note.)  Several key reforms were enacted with 
USAID assistance. 
 
¶4. (U) Tajikistan's improvement in the rankings was the result 
of a targeted effort to craft reforms addressing the specific 
categories examined by the World Bank Group.  Tajikistan 
improved in the "Starting a Business" category by reducing the 
minimum capital requirement for new business from 8,000 to 500 
somoni ($1,805 to $113).  The government did not receive credit 
in this year's rankings, however, for its most heralded reform, 
the establishment on July 1 of a single-window business 
registration process (ref A).  Before the change, applicants had 
to register with at least four, and often several more, separate 
state agencies, and were frequently forced to pay bribes to make 
their way through the byzantine process.  The new system went 
into effect too late to be included in the rankings and will 
likely be reflected in next year's assessment, according to 
Christine Bowers, an economist with the IFC. 
 
¶5. (U) Tajikistan's largest increase in the rankings occurred in 
the "Protecting Investors" category.  The government amended the 
joint stock company act making it easier for shareholders to sue 
company leadership by reducing the ownership threshold.  It also 
established more stringent conflict of interest rules by adding 
to disclosure requirements.  Both changes were supported with 
extensive technical assistance by USAID.  Tajikistan also moved 
up in the "Ease of Getting Credit" category by passing a law on 
credit histories.  This provides for the possibility of opening 
a private credit bureau in the future.  To move any further in 
the rankings, not only must a credit bureau be established, but 
a certain percentage of the population must actually be 
registered with the bureau.  According to Bowers, however, 
Tajikistan is at least five years away from this point. 
 
¶6. (SBU) In the "Closing a Business" category, another 
USAID-supported reform made it easier for companies to declare 
bankruptcy.  Tajikistan's bankruptcy procedures have been so 
difficult that many companies remained on the books long after 
becoming defunct, unnecessarily tying up the country's meager 
productive assets that might be used for new endeavors, 
according to Bowers.  However, she was not convinced the new law 
should have been considered in this year's rankings because it 
had not yet been implemented.  According to the "Doing Business" 
rules, a change must be implemented before being counted. 
Bowers had a similar complaint about the fifth and final reform, 
in the "Dealing with Construction Permits" category, saying 
 
DUSHANBE 00001113  002.2 OF 003 
 
 
that, as far as she could tell, there was no change whatsoever. 
According to a USAID implementer on the project, however, eight 
of eleven envisioned changes have been made in the permitting 
legislation, and once the final three are complete, applicants 
should begin to see differences. 
 
BUT WHAT HAS REALLY CHANGED? 
 
¶7. (SBU) Although several reforms for which Tajikistan was 
credited appeared to be serious, others were more questionable. 
For this reason, Bowers said she had the uneasy feeling that the 
World Bank team may have stacked the deck stacked ahead of time 
in Tajikistan's favor -- possibly to reward the country for 
finally explicitly addressing the Doing Business indicators. 
Regardless, she thought the overall ranking was about right, and 
noted that despite its "top 10" reformer status, it was still 
the fourth-lowest country in Asia, just ahead of Iraq (153rd), 
Afghanistan (160th), and Laos (167th).  (Note:  North Korea is 
not on the index.  So maybe Tajikistan is fifth.  End note.) 
She expressed mystification that Kyrgyzstan came in 41st in this 
year's survey.  While Bishkek had certainly had a head-start and 
spent more time enacting reforms, the structural differences 
between Tajikistan and Kyrgyzstan were hardly large enough to 
separate the two countries by 111 places in the rankings. 
 
AFTER SOME HICCUPS, PROGRESS ON SINGLE WINDOW SYSTEM 
 
¶8. (SBU) The single-window registration process, developed with 
assistance from USAID and the European Union, went into effect 
on July 1 of this year.  USAID's Business Environment 
Improvement (BEI) project helped develop the legal framework for 
the new registration system, while the EU has been developing 
the technological capacity through a one million Euro grant. 
According to Arthur Luke, the EU's consultant on the project, 
the new process was originally supposed to take effect in 
January 2010.  This April, however, the President abruptly 
announced that the single window would be up and running by July 
¶1.  Luke's team, which had not been consulted, was thrown into a 
panic.  They ultimately were able to inaugurate the new 
registration system on time, but continue to work through some 
difficulties. 
 
¶9. (U) Before the single-window went into effect, applicants for 
business licenses faced a byzantine registration process.  At a 
minimum, forms had to be filed with four government agencies: 
the Tax Committee, the Ministry of Justice, the Ministry of 
Labor and Social Protection, and the State Statistical 
Committee.  A separate registration number was received from 
each.  In many cases, for instance where the prospective 
business dealt with food, medicine, or other restricted 
products, a number of other agencies were involved.  The 
business registration process took months to complete and 
exposed applicants to numerous officials who sought bribes along 
the way.  The new single-window system is housed in the Tax 
Committee.  When an applicant registers, the Committee is 
required to distribute the relevant information electronically 
to the other government agencies involved in the process. 
Applicants are required to receive their registration numbers 
within five working days; Luke said most should be processed 
right away.  If after five days an applicant has not heard from 
the Tax Committee, the presumption is that the business is 
registered. 
 
HERDING CATS, MAKING OFFICIALS PLAY NICE, AND OTHER CHALLENGES 
 
¶10. (U) In a country with rudimentary technology, a lack of 
expertise among government officials, and endemic electricity 
shortages, a key challenge has been to develop the electronic 
network necessary to process and keep track of applicants.  The 
EU team had to think of things that would not be necessary in 
other countries.  For example, not only did computers and 
Internet connections need to be set up in each of the Tax 
Committee's 68 regional offices, but generators had to be 
supplied as well, otherwise the system would be useless during 
the country's frequent power outages.  As of mid-September, 50 
branch offices were up and running.  The EU team had to work 
quickly to train staff to meet the July 1 deadline.  They began 
by training 14 Tax Committee officials, who then immediately 
passed their knowledge along to a further 80 officials. 
 
¶11. (SBU) Luke said there had been several challenges, many 
associated with the speeded-up start date.  Training has so far 
been inadequate, and government officials are not yet able to 
process registrations according to regulations.  There is a 
mentality issue as well:  officials sometimes demand documents 
that are not required by the new legislation, and the "silence 
 
DUSHANBE 00001113  003.2 OF 003 
 
 
is consent" presumption that businesses are automatically 
registered unless there is a specific complaint is difficult for 
some to get their minds around.  Also, in the old system, banks 
demanded a registration number from the State Statistical 
Committee before allowing businesses to open an account.  While 
the new Tax Committee number is all that is now legally 
required, some banks have been reluctant to open accounts with 
this number alone.  For now, some continue to apply for 
Statistical Committee numbers, whether due to a lack of 
knowledge about the new system or to cover their bases in this 
interim period. 
 
¶12. (SBU) One of the bigger challenges was getting all of the 
government agencies to work with each other.  For agencies like 
the Ministry of Justice and the State Statistical Committee, the 
placement of the single window at the Tax Committee represents a 
loss of influence over the process, and they have been reluctant 
to cooperate.  The Ministry of Justice, for example, has refused 
to share its registry of pre-existing registrations.  Thus the 
Tax Committee must reformulate the registry from scratch, a 
process that Luke said has been frustrating, but is fortunately 
now underway.  According to the new law, all existing businesses 
must re-register with the Tax Committee by June 30, 2010.  Luke 
was not happy with this rule.  Re-registering is supposed to be 
free, and Luke has not heard of any attempts to extract payments 
out of applicants, but the added burden of re-registering 30,000 
to 35,000 existing businesses may strain the new system, 
especially toward the middle of next year, when many who have 
put off the process are likely to descend at once on the Tax 
Committee's offices. 
 
THE PATH AHEAD 
 
¶13. (SBU) The EU, will finish its work at the end of December, 
no matter what happens.  Because of the lengthy EU granting 
process, there is no way to re-fund this project before 2011. 
For that reason, Luke and his team will focus on two areas: 
consolidating the progress they have made and ensuring that the 
new system remains sustainable once it is on its own.  Some 
computer glitches have proved difficult to resolve, but new 
hardware being brought online should solve the problems.  The 
largest ongoing concern is making sure that the agencies 
involved work together.  The Tax Committee received assurances 
of support from high up in the presidential administration, 
which should help make sure that wayward agencies fall into 
line. 
 
COMMENT: CAN THE MOMENTUM BE SUSTAINED? 
 
¶14. (SBU) The government's focus on the business climate is 
relatively new.  At a meeting just one year ago officials' eyes 
visibly glazed over when it was suggested they follow 
Kyrgyzstan's example of making targeted reforms to improve their 
"Doing Business" ranking.  Since the financial crises began to 
pinch, the government appears to have made a genuine effort to 
push through some necessary changes, including the single-window 
registration process.  The question is how much the government 
will support these reforms after the grant money has dried up 
and the fear of the financial crisis has faded.  One thing is 
clear:  if not carefully tended, these improvements will easily 
fall victim to an unfortunate culture of endemic graft and 
oppressive bureaucracy.  End comment. 
GROSS