Tajikistan - Post-Conflict Rehabilitation Credit Project (PCRC)

Report No. PID5677 Project Name Tajikistan-Post-Conflict (@) . Rehabilitation Credit (PCRC) Region Europe and Central Asia Sector Rehabilitation Credit Project ID TJPE53133 Borrower Republic of Tajikistan Implementing Agency Office of the Prime Minister Date this PID prepared October 27, 1997 Projected Board Date December 16, 1997 1. Background. Tajikistan has been wracked by political instability and civil war since its independence from the Former Soviet Union in 1991. The civil war erupted in Tajikistan in May 1992, as different regional and political affiliations struggled for power after the collapse of the previous system. The armed conflict continued for the next five years with varying degrees of intensity, with major hostilities concentrated in 1992 and 1993. An estimated 50,000 people died, 600,000 people were displaced inside the country, some 60,000 Tajiks fled to neighboring Afghanistan and as many as half a million people were forced to emigrate to other CIS countries. 2. In the first phase of the conflict, the heaviest fighting and physical destruction took place in the south of the country (Khatlon area), shifting later to the center-east (Karategin-Garm-Tavildara area). Houses, roads, bridges, schools, hospitals, water systems and other key infrastructure facilities were destroyed. The war also had a severe impact on the country as a whole, significantly disrupting economic activities and exacerbating poverty. Over the last few years, military expenditures increased to the detriment of other more productive or socially oriented sectors. 3. A complex negotiation process between the Government of Tajikistan and the United Tajik Opposition (UTO) began in 1994, with the signing of a cease-fire in Tehran, and culminated on June 27, 1997, in Moscow, with the signing of the General Agreement on the Establishment of Peace and National Accord in Tajikistan. The peace agreement lays the foundation for peace and security in the country and is based on a 12-18 month transitional period, during which the agreements' provisions are to be further specified and implemented. The principal mechanism for implementing the peace agreement is the Commission for National Reconciliation (CNR), which is chaired by Mr. Said Abdullo Nuri, the leader of the UTO, and is composed of 26 members, 50 percent nominated by the Government and 50 percent by the UTO. After the inaugural session in Moscow (July 7-11, 1997), the CNR reconvened in Dushanbe in mid-September 1997. Parliamentary elections are expected to take place in the second half of 1998. Members of the UTO will be represented in the Government and political parties, which were outlawed in 1993, are now free to  function without Government intervention. 4. The peace accord, no less than the war and the unstable security situation which preceded the peace, poses enormous challenges to Tajikistan's Government. The immediate impact of the peace is to require substantial near term government expenditures for the implementation of the peace agreement, including demobilization and reintegration of ex-combatants and establishing the CNR. Peace and improving security will also intensify pressures on the Government to meet deferred social safety net obligations. While the Government will reap a peace dividend in the form of reduced defense expenditures and higher tax revenue from areas currently out of government reach, the realization of most of these resources will take some time. The combination of urgent near term peace-related expenditure requirements and more gradual realization of a peace dividend thus leaves the Government with a serious near term financing problem. 5. At the Government's request, IDA prepared the proposed PCACI to the Republic of Tajikistan for US$10 million equivalent. The proposed Credit is consistent with the CAS discussed by the Board on May 16, 1996. A donors' conference is planned for Vienna in November 1997 under the sponsorship of the United Nations to assemble financing for relief and near term reconstruction. The Bank's contribution to this effort would be through the proposed Credit and a companion Post-Conflict Assistance Project II being prepared for Board consideration in early 1998 to deal with short and medium term reconstruction requirements in the Karategin Valley region, which has been virtually overlooked by the Government and the donor community. 6. Project Scope and objectives. The main objectives of the proposed Credit are to ease the foreign exchange shortage so that critical imports can be acquired and thereby help restore to some extent production, employment and consumption in the post-conflict economy of Tajikistan. The proposed Credit will provide non- inflationary financing for the budget. The counterpart funds generated by the Credit will help the Government to meet the near- term costs associated with the peace accord while maintaining progress toward financial stabilization. The Government intends to use the counterpart proceeds of the Credit to reduce the arrears towards the social safety net throughout the country and to finance some of the expenditures related to resettlement of refugees, IDPs, and demobilized soldieries. This will provide an early and direct indication of the benefits of peace and demonstrate the Government's desire to include the entire population in the process of national reconciliation. 7. Environmental Aspects. In accordance with the Association's operational Directive on Environmental Assessment (OD 4.01, Annex E), the proposed operation has been placed in Category "C" and does not require an environmental assessment. 8. Poverty Impact. The Credit includes specific measures to provide assistance to the most vulnerable groups-children, - 2-  pensioners and those affected by war. 9. Benefits. The proposed Credit would allow imports of critical inputs and help finance essential expenditures in a manner that is non-inflationary. The Government's proposed program to strengthen the funding of the social safety net for the most vulnerable in the country - children and pensioners - through payment of arrears would partially offset the adverse impact of the war on poor, will help increase purchasing power in towns and villages and is an important signal that the Government is turning its attention from war to peace. 10. Risks. The main risk associated with the proposed Credit is that the peace process may unravel and cause a resurgence of hostilities. The June peace agreement represents a major step in the peace process by bringing the Government and the main opposition group together. Recent acts of violence have, however, spurred both the Government and the UTO to forge a common front against the renegades and move swiftly to implement the peace accord. The social assessments portray a weariness of war among the people and the chances of civil strife will be reduced, if the population sees a difference in their lives as a result of peace process. The proposed Credit will help Government to make this positive "difference". Contact point: M. R. Ghasimi, Team Leader: The World Bank 1818 H St., NW Washington, D.C., 20433 Tel.: (202) 473-5868 Fax: (202) 477-1692 Note: This information is provided for an evolving project. Certain components may not necessarily be included in the final project. Processed by the World Bank Infoshop week ending November 14, 1997. - 3 -