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EBRD updates strategy for Uzbekistan
A year after calling for improvement of the political and economic situation
in Uzbekistan, the EBRD has concluded that there has been very limited
progress and the Bank is no longer able to conduct business as usual. The
Bank will stay engaged in Uzbekistan. But it can only focus its activities on
the private sector and those public sector projects that finance cross-border
activities or clearly benefit the Uzbek people.
The 2003 EBRD strategy for Uzbekistan expressed serious concerns about the
state of genuine multi-party democracy, respect for the rule of law and human
rights in Uzbekistan. The strategy set seven benchmarks for reform and
scheduled a review of progress for the spring of 2004.
Over the past year, the EBRD and the Uzbek Government have been engaged in
extensive policy dialogue including through visits by Secretary General Johnny
Åkerholm and a mission by the Board of Directors. The Bank is constantly
monitoring developments in Uzbekistan, including the deeply regrettable recent
terrorist acts.
While the Uzbek authorities have taken some steps, the review concludes that
the overall impact of reform efforts and the progress towards the benchmarks
have been very limited.
Therefore, EBRD investments will focus on private sector activities such as
supporting small and medium-sized enterprises and attracting foreign direct
investment. The review acknowledges that opportunities for private sector
investment will depend on improvement in the investment climate. The Bank pays
special attention to transparency and governance aspects of any investments.
In the public sector, under present circumstances, the EBRD is able to focus
on only two kinds of projects: local projects that have real and direct
benefits for the Uzbek people, such as improved water and heating; and
projects that involve neighbouring countries. Regional cooperation is critical
for the countries of Central Asia.
The review says that it is important to stay engaged in Uzbekistan, albeit in
a more focused programme of activity, because this is the best way for the
EBRD to support the people of Uzbekistan. Through continued comprehensive
dialogue and engagement, the Bank hopes to encourage Uzbekistan to make
further progress towards political and economic reform and eventually realise
its considerable potential for investment and growth.
The review has the following observations about political benchmarks:
• The government has not registered any opposition political parties. This is
of special concern prior to the parliamentary elections due in December 2004.
While censorship was formally abolished in 2002, media remain subject to state
control, and journalists who express independent views are being harassed.
• A second independent human rights organisation was registered in March 2003,
but many other local NGOs involved in the area of rule of law and protection
of human rights continue to be denied registration. The re-registration
requirement for international NGOs is also of serious concern.
• The government has undertaken some steps to improve access to prisons for
the International Committee of the Red Cross, Western embassies and other
interested parties. A definition of “torture” has been incorporated into Uzbek
legislation; however, torture has persisted in prisons and places of
detention. An action plan on torture has been adopted, although it has not yet
been published and contains no clear monitoring mechanism.
Key observations regarding the four economic benchmarks:
• Current-account convertibility of the Uzbek currency (soum) has been
introduced in line with Article VIII of the IMF Agreement. Yet the potential
benefits of these steps are diminished by reported restrictions on access to
foreign exchange for consumer imports and the tight cash squeeze on the
economy. There has been progress in liberalising the agricultural sector, with
some increase in the state procurement price for cotton, but not to a market
level. The tight cash squeeze has diminished the benefit of higher prices to
producers.
• Obstacles to trade and regional transit remain high, as do restrictions of
domestic wholesale and retail trade. While the new tariff schedule introduced
at the beginning of 2004 reduced slightly the average tariff rate, non-tariff
obstacles to trade are largely unchanged and imports remain at a depressed
level. Both privatisation and foreign direct investment have increased, albeit
from low levels.
• Apart from the sale of minority state holdings in four small banks, there
has been no progress in banking reforms.
• Tariffs for electric power have been increased in real terms and payment
terms tightened in the electric power and gas sectors.
The EBRD will continue to monitor developments in Uzbekistan in relation to
the strategy benchmarks. A new strategy for Uzbekistan is scheduled for the
spring of 2005.
The EBRD, which has invested €527 million in Uzbekistan, has had a lower level
of commitments in recent years as a result of the country’s unfavourable
investment climate. Business volume in 2003 was €26 million.
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