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TITLE:  TAJIKISTAN ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE


                            TAJIKISTAN

                     Key Economic Indicators

    Reliable income, production and employment, money supply
and balance of trade data are not available.  International
Monetary Fund and World Bank financial and economic profiles,
including the country economic memorandum, will be published in
summer 1994.

1.  General Policy Framework

    Following the breakup of the Soviet Union, Tajikistan has
experienced a drastic fall in economic activity.  Successive
declines in productivity, sped by the dissolution of inter-CIS
trade ties, loss of union subsidies, subsequent civil war, and
a series of natural disasters, has culminated in a contraction
of the economy to 50% of its 1988 level.  Capital investment
and capital goods imports have declined precipitously in favor
of the importation of consumption goods, particularly wheat.  A
trend evident before the civil war but intensified in the last
year has been the growing economic autonomy of Tajikistan's
richest region, Leninabad.  Government decrees and legislation
passed by the Supreme Soviet are implemented only selectively
by regional and district authorities.

    Tajikistan has been hesitant to adopt macroeconomic
reforms.  Legislation passed in 1991 and 1992 on property,
privatization, foreign investment, banking activities, foreign
trade, and taxes is largely inoperative due to a lack of
regulation, absence of appropriate implementing mechanisms or
legal bases, and political opposition from entrenched
bureaucrats representing communist-era institutions. 
Approximately 95% of the economy falls under state control.  In
several areas, the government has reinstated stricter controls
over the market, increasing state orders for cotton and produce
and establishing a state monopoly over all foreign trade.  Due
to the disruption of inter-CIS trade payments, a majority of
foreign trade is conducted on a barter or counter-trade basis.

    The government continues to finance insolvent state
enterprises and extensive social subsidies and has increased
military outlays in response to attacks along the Tajik-Afghan
border and pockets of opposition resistance in the interior. 
The spiralling national debt, expected to equal 100% of GDP by
the beginning of 1994, is financed entirely through the
National Bank.  The subsequent high inflation has prompted a
vicious cycle of increases in state subsidies, debt financing
and more inflation.  Virtually no credit is available to
private organizations or individuals and the government
continues to direct credits on a noncommercial basis.  Very low
interest rates, relative to Russia, reduce the accumulation of
savings and prompt the flight of capital.  Tajikistan has
committed to the new ruble zone but until implementation of the
accord continues to use old Soviet banknotes.  The government
has no plans to introduce a national or intermediary currency.

    Tajikistan receives significant amounts of international
humanitarian aid, but little development assistance or
concessional financing.  The government is dependent upon
Russia for 70 percent of its foreign trade and approximately 50
percent of its national budget.  Most of Tajikistan's external
assistance has been in the form of short-term, high interest
loans.  The World Bank has allocated $20 million in
reconstruction loans, which will become available in 1994, and
has prepared technical assistance projects valued at $90
million which will be evaluated by potential donors at a
February 1994 pre-consultative group conference.  Foreign
investment is extremely limited, with only a handful of model
textile industries attracting foreign monies.


2.  Exchange Rate Policy

    Until the Russian central bank introduced the Russian
ruble, exchange rates for Soviet rubles in Tajikistan were
pegged to the Russian central bank's rates and adjusted
biweekly.  The exchange rate policy has complicated
significantly with the new Russian banknote.  According to the
National Bank of Tajikistan, inter-republic payments with
Russia use the formula of 10 Russian rubles for 6.7 Soviet
rubles.  However, the commercial and National Banks' exchange
rates parallel, at a slightly lower level, the much higher
black market rates in Tajikistan and are adjusted weekly.

    On November 23, Tajikistan effectively declared its
re-entry into the Russian ruble zone by signing a new monetary
union agreement with Russia.  The agreement requires Tajikistan
to withdraw all Soviet rubles from circulation and replace them
with Russian rubles.  However, disagreement over Russian
conditions for Tajikistan's re-entry into the ruble zone have
so far delayed implementation of the agreement.

    A separate exchange rate is stipulated for the sale of hard
currency to the government's foreign currency fund.  Depending
upon the export product, exporters are technically required to
sell between 30 and 68 percent of their hard currency earnings
at the artificial rate of 800:1 Soviet ruble/dollar.


3.  Structural Policies

    The economy of Tajikistan was developed in the Soviet
period as a producer of raw materials, primarily cotton,
aluminum, fruits and vegetables, very little of which is
processed domestically.  Consequently, Tajikistan is heavily
dependent on imports of consumer goods, petroleum products,
grain, medicines, machinery and equipment.  Nascent reform
efforts designed to address the economy's imbalance were
derailed by the political instability and ultimate civil
conflict which took place in 1992 and resulted in over 500
billion Soviet rubles in damage according to state figures.

    In October 1993, the government announced a new foreign
trade regime which concentrates all export activity under eight
government ministries, known as general contractors.  Only
general contractors have the right to issue export licenses and
collect the hard currency revenues.  The exporting firm is 
recompensed in rubles or in the equivalent value of state
inputs, while the government retains all hard currency
earnings.  Joint ventures with significant foreign capital
investment are exempted from this regime.  It is unclear that
the legislation is being enforced.  Prior stipulations
regarding hard currency sales to the government have been
ignored or circumvented.  However, the new foreign trade
regulations sharply curtail permissible foreign trade activity
by individual  enterprises.  U.S. firms seeking to export to
Tajikistan must win government support for hard currency
expenses and face a highly bureaucratized and factionalized
system.

    In response to the sharply deteriorating economy, the
government of Tajikistan has identified priority investment
projects which include the agricultural, energy, mining, and
textile sectors.  Technical and commercial credits and limited
government allocations have been focused in these sectors. 
Special incentives are offered to foreign investors, including
waiver of export licenses, two-year tax relief, and subsequent
favorable tax rates.  Additional financial incentives for
foreign investors are negotiated on a case by case basis.


4.  Debt Management Policies

    The government of Tajikistan has agreed to, but not yet
signed, the zero-option accord with the Russian Federation,
whereby Tajikistan's less than one percent share ($787 million)
of the former U.S.S.R.'s public debt will be paid by Russia in
exchange for Tajikistan's claim to a portion of the former
Soviet Union's assets.

    The government has begun to amass a relatively significant
external debt at generally unfavorable terms.  Russia remains
Tajikistan's primary creditor.  In 1993, Russia granted two
sets of technical credits: the first, 49 billion in Soviet
rubles, at existing exchange rates was valued at $80 million;
the second, 60 billion Russian rubles, was valued at $20
million.  Both loans carry interest rates of libor plus 0.5
percent.  Other external debt includes $66 million in European
Community food credits (at 10.4 percent interest), $24 million
in U.S. P.L. 480 concessional food credits, $50 million in
Turkish commercial credits, $5 million each in Chinese and
Indian commercial credits, and a small number of credits from
other CIS states.

    The civil war delayed Tajikistan's entry into the World
Bank and International Monetary Fund until spring 1993.  In
fall 1993, the World Bank and International Monetary Fund sent
teams of consultants to complete a country economic memorandum
which will be published in summer 1994.  The World Bank has
allocated $20 million in reconstruction/rehabilitation loans
and identified $90 million in potential technical assistance
and development projects.  However, the extent of World Bank
and International Monetary Fund involvement in Tajikistan is
contingent on reforms at the macroeconomic level.



5.  Significant Barriers to U.S. Exports

    Tajikistan's impoverished economy, geographical isolation,
and business culture which emphasizes personal contacts over
competitive bidding are the primary impediments to expanded
U.S. trade.  Tajikistan's privatization legislation encourages
foreign investment except in sectors deemed to be of state
interest.  Those sectors include defense and defense-related
industries, railroads, telecommunications, objects of national
heritages, mining, aviation, and alcohol production.  Joint
venture investments in these sectors or in related service
sectors are welcomed.

    The government is drafting but has not passed legislation
permitting land ownership for property related to commercial
enterprises.  Agricultural lands will not be privatized, but
long term leases are being instituted at the discretion of
regional and district authorities.  Foreign investors in
Tajikistan generally receive extremely favorable treatment, to
include long term land leases.

    Virtually all trade is conducted by the government, given
the preponderance of state ownership of enterprises and limited
privatization.  Fine fiber cotton and aluminum are the two main
sources of government hard currency and trade deals are
characterized by the amount of tons the government has decided
to allocate.  The government's foreign trade association,
Omoniyon, is given an annual quota of cotton and aluminum to
sell for the purchase of grains, medicines, and other consumer
products.  Some large joint ventures involve counter-trade. 
The government rewards loyal foreign investors and business
partners.  There is no formal competitive bidding process for
government projects.


6.  Export Subsidies Policies

    Tajikistan is not a member of the GATT subsidies code.  As
a former Soviet Republic, Tajikistan retains certain export
subsidies as a legacy of inefficient socialist pricing
policies.  Gas and electricity, when available, are sold at
less than what the cost would be, if it were known.  The
government has publicly committed to supporting export-oriented
industries, specifically through the provision of scarce
financing.


7.  Protection of U.S. Intellectual Property

    Tajikistan is taking appropriate measures to align itself
with international intellectual property rights standards
although, due to the collapse of the domestic economy, the
issue is not a pressing one.  In the absence of specific
legislation, Tajikistan retains on books the laws of the former
Soviet Union.  However, in June 1992, Tajikistan acceded to the
Universal Copyright Convention and created a Copyright Agency. 
In May 1993, the government announced the creation of a Patent
Information Center.  The Center is charged with preparing the
necessary legislation to enter into international covenants
protecting intellectual property rights.  The Copyright and 
Patent agencies exist only in outline form and lack experienced
personnel.  However, infringement of intellectual property
rights in Tajikistan is limited to individual (and negligible)
violations of videocassette copyrights.  There is no
quantifiable loss for U.S. firms in export or investment
opportunities.


8.  Worker Rights

    a.   Right of Association

    All citizens are guaranteed the right of association. 
Included in this guarantee is the right to form and join
associations without prior authorization, to organize
territorially, to form and join federations and affiliate with
international organizations freely, and to participate in
international travel.

    There is no longer any requirement for a single labor union
structure.  However, the communist-era Confederation of Trade
Unions remains the dominant labor organization, although it has
shed its subordination to the Communist Party.  The
Confederation consists of 20 professional trade unions and
claims 1,689,000 members.  The separate labor union of private
enterprise workers has registered 3,000 small and medium
enterprises, totalling 40,000 members, some of whom have dual
membership in the Confederation.

b.  Right to Organize and Bargain Collectively

    The right to organize and bargain collectively is codified
in the Law on Trade Union Rights and Guarantees, the Law on
Social Partnerships and Collective Contracts, and the Law on
Labor Protection.  Anti-union discrimination or the use of
sanctions to dissuade union membership is prohibited.

    Prohibition of Forced of Compulsory Labor

    Forced and compulsory labor is considered to be prohibited, 
although there is no explicit injunction in the Law on Labor
Protection of the Law on Employment of the Population. 
However, these laws provide that a person has the right to find
work of his own choosing.  Labor inspectors within the local
trade union structure enforce this principle.  The Soviet
practice of compelling students to harvest cotton was outlawed
in 1989, but students were encouraged to collect the cotton
crop in 1993 and waived from attending university courses. 
There are unconfirmed reports regarding the forced labor of
returnees and other presumed supporters of the former
government in the district of Bokhtar and elsewhere in the
south.  Local officials and collective farm directors appeal
responsible for instituting the forced labor.  There are
indications that persons detained and awaiting trial have been
placed in labor battalions.

    d.   Minimum Age of Employment of Children

    According to labor laws, the minimum age for the employment
of children is 16.  With the concurrence of the local trade
union, employment may begin at the age of 15.  While official
data is lacking, children from the age of seven routinely
perform agricultural work, which is classified "family
assistance."

    e.   Acceptable Conditions of Work

    The government's occupational health and safety standards
fall below typical western standards and are not actively
enforced.  According to official data, more than a fifth of
industrial workers worked in substandard conditions.  The
standard work week is 40 hours.  The only sector to have even
indirect U.S. investment is the manufacturing sector,
specifically two cotton textile and one leather production
factories.  In each instance workers have been free to organize
a local chapter of the Confederated Union.  There are no known
instances of forced or compulsory labor or use of child labor. 
Relative to former Soviet standards, the factories provide
acceptable conditions of work.

    f.   Rights in Sectors with U.S. Investment

    There is no significant U.S. investment in Tajikistan.

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