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Farm debt in transition countries: Lessons for Tajikistan

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  • Lerman, Zvi
  • Sedik, David J.
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    Abstract

    Farms in Tajikistan currently face a severe debt crisis that has been caused by a combination of two factors typical of such situations in many countries: (a) the inability of the farms to make a profit under current conditions and (b) continued lending by the banks to cotton producers regardless of reduced payment capacity and lack of credit-worthiness. The paper traces the accumulation of farm debt in Tajikistan to pervasive government intervention in both financing and production decisions, which has led to soft budget constraints and moral hazard behavior. The purpose of the paper is to inform the debate around the issue of cotton farm debt in Tajikistan by studying the experience of other countries that had to contend with farm debt overhangs in the 1980s and the 1990s. Five CIS transition countries (Belarus, Kazakhstan, Moldova, Russia, and Ukraine) and one market economy (Israel) are studied using time series of aggregate financial reports of the farm sectors. The comparative analysis shows that the farm debt issue is not strictly a transition economy phenomenon. The problem can occur in market economies (e.g., Israel) if the state pursues policies directed toward the expansion of farm production without heed to creditworthiness of the farms and if the farm structure is incompatible with profitability and efficiency criteria. The basic reasons that led to debt accumulation in CIS and in Israel remain valid to this day, and the policy solutions implemented in these countries are relevant for Tajikistan.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49253.

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    Date of creation: 2009
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    Handle: RePEc:ags:aaea09:49253

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    Keywords: Farm debt; transition economies; Tajikistan; CIS; Israel; farm restructuring; agricultural reforms; Agricultural Finance; Institutional and Behavioral Economics; Q140; P210; P320; G300;

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