TAJIKISTAN is the former Soviet Union’s poorest state. The way President Emomali Rahmon and his pals resist transparency and reform, it looks like they want to keep it that way. With their gilded palaces and vanity projects—the president recently broke ground on a $100m theatre—they are not the paupers.

Mr Rahmon’s staying power—he has held office for 23 years—may owe something to Western handouts. Despite signs of corruption in the government’s handling of such funds, the money keeps on flowing. Western diplomats admit that Tajikistan’s support for their governments’ involvement in Afghanistan, with which Tajikistan shares a long and porous border, has bought it tolerance.

Internal documents compiled by a foreign donor and leaked to The Economist show that foreign aid institutions are once again opting for business-as-usual despite evidence they have recently acquired of what they suspect to be the embezzlement of hundreds of millions of dollars in state funds. A fraud outlined in the documents looks like the continuation of one that the IMF discovered in 2007, when the then chairman of the central bank, Murodali Alimardon, was claiming the country’s reserves to be three times bigger than they actually were, apparently in order to make Tajikistan eligible for additional aid. The IMF asked Tajikistan to return $47m and accept an audit of the bank by Ernst & Young. The firm’s inspection found brazen deceptions, such as fake ledgers and records being burned in a car park. It also found that the bank had not reported over $550m in loans to cotton projects connected to Mr Alimardon and his family.

After admitting that he had lied to the IMF, Mr Alimardon—whom Tajiks call “Papa’s Purse” for his many years of service to Mr Rahmon—was promoted to deputy prime minister in charge of agriculture. The IMF resumed lending, disbursing $116m over the subsequent three years. The deceit continued. Soon after Mr Alimardon took up his new post, the leaked documents show, his government directed Agroinvestbank (AIB), one of Tajikistan’s largest lenders, to make 37 uncollateralised loans worth about $120m to cotton producers and private agricultural firms in which his close relatives had stakes. Mr Alimardon acknowledges his relatives’ interests in the companies, but denies he ordered AIB to lend to them.

By 2012 the loans had defaulted. The president ordered the finance ministry to recapitalise AIB with budget funds. Records of the loans have since disappeared, says a banker who has reviewed balance-sheets both of the AIB and of the ministry. In a letter to the World Bank, Mr Rahmon promised that the directed lending would stop. Yet it resumed almost immediately.

In April none other than Mr Alimardon was appointed as AIB’s chairman. He faces a challenge: the bank’s liabilities exceed its assets by about $100m, threatening instability to the country’s whole banking system. Some bankers believe Mr Alimardon was put there either to clean up his mess or to hide it.

In a place where government institutions do little to serve ordinary people, some hail Mr Alimardon as a philanthropist who has led reforms in agriculture. He defends the loans, saying that AIB shareholders initiated them for “patriotic reasons” and that debtors will pay everything back by 2020. Shareholders are sceptical. The European Bank for Reconstruction and Development, which bought a quarter of AIB in 2009, says the loans were disbursed without its knowledge “on terms inconsistent with sound banking practices.”

But that is not deterring donors, who are reviewing another request by the government to fill a “budgetary gap”. Tajikistan is being pummelled by economic downturn in Russia, which has sent its currency, the somoni, sliding this year. Tax revenues have shrunk so much that officials are demanding that businesses pay tax in advance. The World Bank and the Asian Development Bank (ADB), which together have given Tajikistan over $140m in budget support since 2009, are considering another $40m this year. The ADB says the AIB scandal will not affect its decision. Western governments cover many basic social needs. For example, USAID, the American government’s aid agency, spent $25m in Tajikistan last year.

A senior manager at one foreign lending institution bemoans such largesse. “Our performance is measured by how much money we move out the door,” he says. It signals to the government of Tajikistan that “we’re a bunch of pussies”.