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Update No: 258 - (27/06/02)

The Uzbeks are looking at a new role for themselves in the post 9:11. Now allies of the US and a lynch-pin in the struggle against terrorism, they also have a place on the new energy scene as part of its Russia-Central Asian axis. President Islam Karimov has brought himself and his regime in from the cold. Relations with a Republican Administration were always likely to be preferable to those with a Democratic one, as is now abundantly the case. Karimov, as leader of by far the largest population (25 million) of the five FSU republics in Central Asia, and his capital of Tashkent formerly that of the whole region before Stalin created the five republics, has long held ambitions to be the regional leader which prospect has dwindled in recent years.

The economy stutters
Despite the new US presence and bases in the republic, the economy is in the doldrums, unlike Kazakstan next door. But then the Kazaks have vast proven resources, whereas Uzbekistan does not, excepting a fine stretch of the fertile Fergana Valley, plus a swathe of minerals and potential, still unexplored, for further oil and gas.
The growth figure for GDP is none too good this year, coming in at a likely 2%. Growth was 4% in 2000 and 4.5% in 2001. Foreign direct investment is negligible for such a large country, being US$150m this year, after being US$73m in 2000 and US$71m in 2001. But then business practices are notoriously opaque in Uzbekistan. Pride in its ancient trading traditions athwart the Silk Road makes its officials less flexible than in neighbouring Tajikistan

Water crisis
The republic's rivers, the ancient Oxus and Jaxartes, are drying up, as in the Aral Sea they feed in Kazakstan. A water crisis looms, itself deterring FDI.
A plan to redirect Siberian rivers, shelved in Soviet days is back on the drawing board. But it carries appalling risks for the ecology of a sizeable part of Eurasia, as critics have long pointed out. The Aral Sea shrinkage is directly due to Soviet-era re-directing of the rivers, to supply the cotton plantations of Turkmenistan and Uzbekistan.
The Siberian river diversion plan would require a 2,000 km-long Siberia-Central Asia canal. Its cost of US$16bn is far beyond the reach of the states which would be involved, Kazakstan, Uzbekistan, Tajikistan and Russia. This alone is likely to kill the idea stone dead, to the relief of local environmentalists.

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AGRICULTURE

Uzbekistan rekindles river project to shore up resources

The Uzbek government is currently reviving the possibility of diverting Siberian rivers with the aim of bolstering the region's agricultural infrastructure thus making sufficient use of its water resources. As every intervention to the environment's natural course, this initiative has raised views both for and against. Proponents see the project as necessary to prevent an economic disaster, while adversaries warn that diverting Siberian rivers could cause new ecological damage in a region already ravaged by environmental catastrophes.
As noted by EurasiaNet, the diversion of waters from the Ob and Irtysh rivers is not a new idea. In the 1980s, about 150 scientific and research institutes in the former Soviet Union collaborated on developing a water diversion blueprint, which would supposedly enlarge the amount of arable land in Central Asia, Ural and Siberia by 4.5 million hectares. The plan ultimately was never implemented, reportedly because of stiff opposition from within elements of the Soviet political and academic hierarchies. These days, Central Asian states are having difficulties sharing scare water resources. Uzbekistan, in particular, is facing shortages. Drought and mismanagement has compounded the country's agricultural woes. In 2001, for example, the country's rice harvest was 67,800 tonnes, recording a 56% decrease over the previous years' results.
"This project is of great importance not only for Uzbekistan but also for other countries in the region," First Deputy Minister of Agriculture and Water Resources of Uzbekistan, Abdurakhim Jalalov, commented. "It becomes especially apparent in dry years when the level of water in the region's rivers is very low.
"In 2000-2001 as well as this year we can witness shortage of water in, Amu Darya. Khorezm, Bukhara and Kashkadaria Regions as well as Karakalpakstan have seriously suffered from the lack of water," he continued.
The Siberian river diversion plan calls for the construction of a 2,000-kilometre-long Siberia-Central Asia Canal, which would bring additional water to Amu Darya and Syr Darya rivers, which feed the Aral Sea. In recent decades, irrigation had so depleted both rivers that in most years no water reached the Aral Sea. Estimates on construction costs vary whilst some say the project could cost as much as US$16bn, an amount far beyond the reach of states in the region.
During a recent ecological forum in Tashkent the participants decided to establish an international consortium to develop the project and then present it to the political leaders of Kazakstan, Uzbekistan, Tajikistan and Russia for discussion. There has been no reaction from the Russian government so far. Some experts suggest that the enormous cost is not the largest obstacle to realising the project.

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FINANCIAL NEWS

Uzbek market economy hopes face crucial test

The ex-soviet state of Uzbekistan faces a crunch point in June for its hopes of becoming a full market economy, the Financial Times has reported.
Until now the central Asian state of 25m has clung to a Soviet-style system of multiple, state-controlled rates for hard currency exchanges. At the same time, local businesses have been limited by quotas on the amount of sum, the national currency, that they can turn into dollars.
On June 30th, all this is supposed to end. A staff monitored programme (SMP) agreed in January between the International Monetary Fund and President Islam Karimov's government, promises to remove all restrictions on foreign currency exchanges. It should also reduce the difference between the official rate and the black market rate to 20 per cent.
The restrictions were imposed in 1996 to shield the country from the shocks of a transition to a free-market economy. They are blamed, however, for turning Uzbekistan - which could be the economic engine of the region - into an economic backwater.
Central Asia as a whole has basked in increased international attention since September 11th. Uzbekistan in particular has also enjoyed increased goodwill from the US for its willingness to provide a military base for operations in Afghanistan.
The IMF says that if Uzbekistan manages to liberalise exchange rates by the end of June, the country could soon begin new loan programme talks. This goodwill may not last, however, if Tashkent is seen to be against real change.
"For the Uzbeks this is the best opportunity to get maximum economic support. Two years from now, it may be only 50 per cent. There has never been a time when the US government and other people were looking at Uzbekistan as favourably as now," said one senior western diplomat.
If the Uzbeks fail, he said, the economy could sink further into stagnation and possibly destabilise neighbouring Kyrgyzstan and Tajikistan. The SMP also calls for other potentially revolutionary changes this year, such as an overhaul in procurement practices in the cotton industry, the country's main cash crop and a source of widespread corruption.
Two official exchange rates remain: a commercial rate for business transactions and over-the-counter rate for individuals. Uzbek officials freed up the OTC trade in May and are now believed to be buying up sum in order to drive down the black market rate. 
But where some see good, tight fiscal policy in removing sum from circulation, others fear the move is only temporary to meet the June 30th deadline. The unofficial rate could shoot up again in the next months, they say.
Erik De Vrijer, the IMF official dealing with Uzbekistan, said: "We will bend over backwards to help the Uzbeks, but we will not close our eyes."

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FOREIGN LOANS

USTDA approves grants for 7 projects in Tashkent

The US Trade and Development Agency (USTDA) has approved seven grants totalling almost US$2.5m for various development projects in Uzbekistan, namely in the rail, information technology, and water resources sectors, as well as for small- and medium-sized enterprises, a TDA press release recently announced.
"Uzbekistan has been a strong ally in the fight against terrorism, and our goal is to broaden our bilateral relationship in the economic sphere as well," TDA Director, Thelma J Askey said.
The grants follow, by just six months, the signing of a broad agreement between TDA and the government of Uzbekistan on cooperation in enhancing commercial and economic relations.
The TDA Director and Uzbek Minister of Foreign Economic Relations, Elyor Ganiev, signed an MOU acknowledging the TDA grants at a ceremony at the embassy of Uzbekistan. The grants cover projects in the rail, information technology, and water resources sectors, as well as assistance in small and medium enterprise development. Additional projects in the fertiliser and power sectors are currently under consideration by TDA.
"A recent announcement is a strong indication of our desire to improve trade relations between our countries and to assist Uzbekistan in planning major infrastructure projects that will contribute to that country's economic growth," Askey noted.
The US Trade and Development Agency promotes American private sector participation by helping US companies pursue business opportunities to develop. Through the funding of feasibility studies, orientation visits, specialised training grants, business workshops, and various forms of technical assistance, they help American businesses compete for infrastructure projects in emerging markets.
In addition, the agency promotes capacity building initiatives and supports US government trade, economic policy and development objectives around the world. 

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