Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE TAJIKISTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS TAJIKISTAN Key Economic Indicators 1992 1993 1994 1/ Income, Production and Employment: Real GDP Growth (pct.) -76.4 -28.0 N/A GDP (at current prices) 2/ 279.2 305.7 251.7 By Sector: Agriculture 217.0 116.4 9.4 Energy (bil. KWHs) 16.3 17.7 13.8 Manufacturing 3/ 207.0 378.6 506.7 Construction 16.5 17.8 14.4 Rents N/A N/A N/A Financial Services 13.5 13.6 20.0 Other Services 0.53 0.40 0.20 Government/Health/Education 59.5 43.6 34.8 Net Exports of Goods & Services -11.1 -25.0 -28.8 Real Per Capita GDP (USD) 267.5 26.6 N/A Labor Force (millions) 1.86 N/A 1.40 Unemployment Rate (pct.) 4 N/A N/A Money and Prices: (annual percentage growth) Money Supply (M2/bil. rubles) 15.3 145.2 130.0 Base Interest Rate 4/ N/A N/A N/A Personal Saving Rate 14 14 60 Retail Inflation 406.6 555.4 N/A Wholesale Inflation N/A N/A N/A Consumer Price Index 823.2 1,065.0 110.8 Exchange Rate (USD/ruble) Official 188.0 2,064.3 2,287.0 Parallel 188.0 2,064.3 2,287.0 Balance of Payments and Trade: Total Exports (FOB) 5/ 55.9 97.2 241.5 Exports to U.S. N/A 6.8 5.5 Total Imports (CIF) 5/ 12.6 122.2 269.7 Imports from U.S. 71.9 3.9 12.9 External Public Debt 787.0 1,021.0 1,461.7 Debt Service Payments (paid) N/A N/A N/A Gold and Foreign Exch. Reserves N/A N/A N/A Trade Balance 5/ -39.4 57.3 -70.1 Trade Balance with U.S. -71.9 2.9 -7.4 Note: Reliable income, production and employment, money supply and balance of trade data are not available in Tajikistan. While a country memorandum was produced by the World Bank in April 1994, even that document notes the unreliability of data due to inaccuracies in government accounting methods and poor government information collection. The figures provided, a combination of both government and World Bank data, should be used with caution and primarily as a basis for comparison. N/A--Not available. 1/ 1994 figures are all estimates based on available monthly data in October 1994. 2/ GDP at factor cost. 3/ Includes the cost of material expenses - net figures not available. 4/ Figures are actual, average annual interest rates, not changes in them. 5/ Merchandise trade. 1. General Policy Framework The severing of trade links with the countries of the former Soviet Union (FSU) after the breakup of the USSR, continuing uncertainty over Tajikistan's entry into the Russian ruble zone and the complete shutdown of all inter-republican banking payments have exacerbated a situation already in crisis after two years of civil conflict and natural disasters. The economy continued to contract sharply throughout 1994, affecting even the industrialized, highly productive region of Leninabad in the north. Some estimates put 1994 industrial production at no more than 30 percent of 1988 levels and in some sectors, such as construction, estimates are even lower. The collapse of domestic production has led to an almost total dependence upon imports of consumer goods, particularly grain, to the exclusion of capital goods and investments. While the government has taken some steps toward reform, these have been to a large extent legislative exercises, with no active implementation or enforcement. A governmental preoccupation with political stability combined with the entrenched bureaucratic opposition to reform made the economy, however dire the situation, a lesser priority. In addition, no resolution could be reached regarding the establishment of a separate Tajik currency until the political situation stabilized. Approximately 90 percent of the economy remains government-controlled and that which has been privatized has gone, in the majority of cases, into the hands of the work collective of that particular enterprise. The government further restricted the market in Tajikistan by increasing the state orders for cotton and aluminum and limiting the issuance of export licenses. Tajikistan's adoption of the Russian ruble as its official currency without integration into the ruble zone has led to a situation whereby Tajikistan is completely dependent upon the largesse of the Russian Federation in order to obtain bank notes. This untenable situation has been precariously maintained throughout 1994, although there is some hope that the government elected in November 1994 may take more aggressive steps to resolve the current crisis. The money supply has shrunk to the point that the economy has reverted to a barter system, particularly in rural areas. Salary and pension payments lag months behind and workers are paid on account as the liquidity of the Tajik economy is completely dependent upon the delivery of ruble notes from Russia. The reliance on imports together with the decline in domestic production have led to the flight of rubles out of Tajikistan almost as soon as they arrive. Agreement has not yet been reached with the Russian Federation on the rate of exchange for pre-1993 rubles and hence all previously held currency is literally frozen in bank accounts and not convertible. The government's debt to the population for salary and pension payments in the first half of 1994 was over 220 billion rubles. Tajikistan's massive debt, totaling over $440 million or 31 percent of GDP for the first half of 1994, is financed for the most part by credit from the National Bank. Inflation has remained fairly constant, even dropping over the summer, due to the extreme shortage of banknotes in circulation. Government expenditures are largely for grain, the supply of fuel and raw materials for industry, and expenditures for the military which is maintained in response to attacks both along the Tajik-Afghan border and against pockets of opposition resistance within Tajikistan. In addition, the government still subsidizes inefficient state enterprises and provides subsidized prices for food, fuel and other consumer items. While the government remains dependent on the Russian Federation for about 80 percent of its trade and 14 percent of its budget, 1994 saw the successful shift of a large proportion of Tajik exports to Western partners, particularly in cotton and aluminum. In 1994, virtually all of the aid which Tajikistan received continued to be devoted to humanitarian assistance rather than technical or development assistance or concessional financing. The World Bank donor conference scheduled for February was postponed in September. Uncertainties remain and hence reconstruction loans valued at $20 million which were to have become available in 1994 have been put on hold pending resolution of Tajikistan's fundamental questions of political stability and viable currency. In November 1994, however, the European Bank for Reconstruction and Development decided to initiate a limited technical assistance project in the banking sector. The bulk of the proposed technical assistance projects, however, have yet to find donors. 2. Exchange Rate Policy Tajikistan is the only FSU state that still has the Russian ruble as its national currency. On January 5, 1994, Tajikistan officially exchanged all of its old Russian rubles for new 1993 rubles. Exchange rates in Tajikistan are tied to the MIREX rate in the Russian Federation and are adjusted bi-weekly. The government maintains only one official exchange rate. This tracks fairly closely with the unofficial or black market rate, differing only by 100 to 200 rubles. Delayed entry into monetary union with the Russian Federation resulted in an acute cash shortage which is becoming increasingly severe with the passage of time. Unfortunately, with the conversion to new Russian rubles, the Russian Federation and Tajikistan did not agree upon an official exchange rate for the new and old rubles and this issue is still outstanding between the two countries. The Government of Tajikistan has shied away from introducing a national currency; this decision as prolonged the economic crises and complicated decisionmaking. The introduction of the new Russian ruble without Tajikistan's entry into the ruble zone has further resulted in a segmentation of the money supply. The scarce cash component is made up of Russian currency which is internally and externally convertible into cash or goods. Enterprises are charging as much as ten times the asking prices for purchases made by non-cash transactions. The result of this impasse is that all "old" money deposited in accounts at the time of the ruble changeover has been, in effect, "frozen" and is inaccessible to both enterprises and individuals. Throughout 1994, wages routinely lagged six months behind, and often as much as eight to ten months. The impact of Tajikistan's exchange rate policies upon U.S. exports is slight for the simple fact that there is little substantial trade between the two countries. Government requirements for the sale of hard currency to the government hard currency fund remain. Depending upon the export product, exporters are technically required to sell between 30 and 70 percent of their hard currency earnings to the fund. The rate of exchange, however, has been changed to match the market rate and is adjusted bi-weekly to coincide with the official rate. The percentage of profit that must by law be exchanged varies according to the percentage of the enterprise owned by the foreign entity. 3. Structural Policies 1994 has seen an unfortunate acceleration of the continuation of the return to centralized economic planning in Tajikistan. The government announced a new foreign trade regime which concentrates virtually all export activity in the Ministry of Foreign Economic Relations. This ministry has the exclusive right to issue export licenses in accordance with quotas issued by the Ministry of Economy for all export products, of which cotton and aluminum are the two main strategic resources. The impact of this legislation falls primarily upon U.S. joint ventures or producers doing business in Tajikistan. The new government came to power on a platform which clearly stated the necessity to restrict imports of hard liquor, tobacco products, and cotton oil. There was also a call for the regulation of all food prices. In November, however, Tajikistan adopted a new constitution which codifies, for the first time, the right of the individual to own property. This could provide for the intensification of privatization efforts, particularly in agriculture. Since 1992, Tajikistan has enacted numerous laws aimed at broadening its economic reform efforts. These laws have not yet been effectively implemented for a number of reasons, chief of which is the lack of political will among both the government's top leaders and mid-level functionaries. Tax policy in Tajikistan was substantially revised in 1994, with an overhaul of the tax code and an attempt to increase tax revenue by the imposition of several new taxes. 4. Debt Management Policies Tajikistan is a signatory to the zero-option accord with the Russian Federation and is thus not liable for its share of the debts of the former Soviet Union. Estimates from the Ministry of the Economy place Tajikistan's budget deficit at over $440 million or 31 percent of GDP. This debt is financed for the most part by the National Bank, but Tajikistan has also borrowed on unfavorable terms in the world markets. Russia is Tajikistan's primary creditor, with current debts totaling $127 million. The Russian Federation supplied Tajikistan with a 120 billion ruble loan in January as well as a second tranche of 30 billion rubles in October. Technical credits valued at 80 billion rubles are promised but have not yet been delivered. These loans were guaranteed by Tajik assets in the form of major industrial enterprises. As of July 1994, debts to Kazakhstan totaled $22.3 million while debts to Uzbekistan topped $96 million. Russia has postponed Tajikistan's repayment of the loans until January 1, 1996, but Tajikistan must repay $10.73 million to Uzbekistan and Kazakhstan in 1994. Other debt includes $27.5 million in P.L. 480 concessional food credits, $50 million in Turkish commercial credits, and $5 million each in Chinese and Indian commercial credits. 5. Significant Barriers to U.S. Exports Tajikistan has several serious barriers to U.S. exports, but these are more related to geography and the general economic crisis than any deliberate targeting of U.S. goods and services. Tajikistan's geographical isolation, devastated economy and, most importantly, lack of a national currency, severely undermine Tajikistan's ability to trade effectively, even with neighboring CIS states. Interest in U.S. products is precluded by the lack of banking transfers or cash payments with which to purchase them. Yet another contributing factor is a business culture in Tajikistan which emphasizes personal contacts over competitive bidding. In general, legislation encourages foreign investment but contradictory decrees and a newly expanded tax burden make doing business in Tajikistan a complex process. The government conducts virtually all trade in Tajikistan. Fine fiber cotton and aluminum are the two main sources of government hard currency and trade deals are characterized by the amount of tonnage the government has allocated. The government trade association "Somonion" is given an annual quota of cotton and aluminum to sell in exchange for grain, medicine and consumer goods. With some effort, foreign investors are able to negotiate very favorable deals with the government and can receive benefits such as tax relief, long-term land leases and resource allocations without which it would be exceedingly difficult to do business in Tajikistan. 6. Export Subsidies Policies Tajikistan is not a member of the GATT export subsidies code. Tajikistan retains to a large extent the Soviet practice of indirect subsidies through inefficient socialist pricing mechanisms. In the case of aluminum, a major export, concrete data is difficult to obtain, due to the common practice of dealing through a third party or country. U.S. Department of Commerce figures, however, claim that Tajikistan accounts for approximately one percent of aluminum imports to the United States. Subsidized government rates for energy (both gas and electricity) and other operating and raw material costs, give aluminum produced in Tajikistan a distinct advantage over aluminum produced in the United States or elsewhere. In general, though, the government of Tajikistan has only limited opportunity to use export subsidies as a means of providing either direct or indirect support for exports - a situation exacerbated by the economic crisis. That notwithstanding, the government is publicly committed to supporting export-oriented state enterprises, chiefly by the provision of scarce financing and government credits. These credits have gone largely to the agriculture, energy, mining and textile sectors. 7. Protection of Intellectual Property Protection of intellectual property is not a high priority of the Government of Tajikistan, but neither is the need for protection very severe. While many laws designed to protect intellectual property rights already exist, the government has limited means by which to enforce them. Piracy of video and audio cassettes which are brought in from neighboring CIS countries is the most common abuse of intellectual property. There is no evidence that Tajikistan exports any locally produced pirated goods. The small amount of piracy which occurs in Tajikistan has a negligible effect, if any, on U.S. exports. However, Tajikistan is undertaking the appropriate measures to align itself with international intellectual property rights standards. Tajikistan is a signatory to the Universal Copyright Convention. The copyright agency created by the government has little knowledge as to how best to approach its task, and as yet its committee is not very active. On February 14, 1994 Tajikistan became a member of the World Intellectual Property Organization (WIPO). In 1993, the government created a national patent information center. This center is charged with the preparation of legislation required to enter into international covenants. In February 1994, the government enacted legislation on the regulations governing inventions, utility models and industrial samples. These regulations cover the creation, legal protection and use of the above. Tajikistan also maintains a state standards agency, which has the main responsibility for trademarks. 8. Workers Rights a. The Right of Association All citizens are guaranteed the right of association. Also guaranteed is the right to form and join associations without prior authorization, to organize territorially, to form and join federations and affiliate freely with international organizations, and to participate in international travel. The Confederation of Trade Unions, a holdover from the Communist era, remains the dominant labor organization, although it has since shed its subordination to the communist party. The Confederation consists of 20 individual trade unions and currently claims to have 1,500,000 members - virtually all non-agricultural workers. The separate labor union of private enterprise workers has registered 3,241 small and medium-sized enterprises, totaling 60,000 members, some of whom have dual membership in the Confederation. Both labor unions are formally consulted by the Council of Ministers during the drafting of social welfare and worker rights legislation. b. The 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 Contract and the Law on Labor Protection. Although collective bargaining is guaranteed by law, as the economic situation declines, enterprises are finding it increasingly difficult to engage in effective collective bargain. Any anti-union discrimination or the use of sanctions to dissuade union membership is prohibited. C. Prohibition of Forced or Compulsory Labor Neither the Law on Labor Protection nor the Law on Employment specifically prohibit forced or compulsory labor. However, these laws do provide that a person has the right to find work of his or her own choosing. This principle is enforced in the local trade union structure by the labor inspectors. The Soviet practice of compelling students to pick cotton was officially banned in 1989. However, due to the lack of fuel and mechanical harvesting equipment in the fall of 1994, students were again sent to the fields to pick cotton as they were in 1993. d. Minimum Age for the Employment of Children According to labor laws, the minimum age for the employment of children in Tajikistan is 16, the age at which children may legally leave school. With the concurrence of the local trade union, employment may begin at age of 15. Those less than 18 may not work more then six hours a day and 36 hours a week. However, agricultural work, which is classified as "family assistance," is routinely done by children as young as seven. Trade unions are responsible for reporting any violations involving the employment of minors. e. Acceptable Conditions of Work The legal workweek for adults (over age 18) is 40 hours, with a 48 hour rest period. Overtime payment is mandated by law with the first two hours of overtime to be paid at one and one half times the normal rate and the remaining overtime at double time. The government has established occupational health and safety standards, but these fall far short of international norms and are not actively enforced. Relative to former Soviet standards, however, it is virtually certain, given the continuing economic decline, that the one-fifth working in substandard conditions reported in 1993 greatly underreports the number working in substandard conditions in 1994 (although reliable new statistics are not available). There are occasional reports of armed militia forcing villagers to perform agricultural work on private plots. There are no known instances of the use of child labor, other than in the case of picking cotton. f. Rights in the Sectors with U.S. Investment There is no significant U.S. investment in Tajikistan. (###)