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Russia conquered Uzbekistan in the late 19th century. Stiff resistance to the Red Army after World War I was eventually suppressed and a socialist republic set up in 1925. During the Soviet era, intensive production of "white gold" (cotton) and grain led to overuse of agrochemicals and the depletion of water supplies, which have left the land poisoned and the Aral Sea and certain rivers half dry. Independent since 1991, the country seeks to gradually lessen its dependence on agriculture while developing its mineral and petroleum reserves. Current concerns include insurgency by Islamic militants based in Tajikistan and Afghanistan, a non-convertible currency, and the curtailment of human rights and democratisation.
Update No: 269 - (29/05/03)
The odd one out
The Uzbek regime is refusing to cooperate with the EBRD in reforms and correction of abuses of human rights, notably torture. President Islam Karimov insisted at an EBRD meeting in Tashkent in early May that his state reserved the right to use torture. He has in the past threatened to strangle religious dissidents with his own hands.
He has long been targeted by the Islamic Movement of Uzbekistan (IMU), whose cadres were severely reduced in the Afghan war. But a new insecurity in Afghanistan is helping them to restock and replenish numbers.
The grim and repressive regime feeds the conditions that bred such as IMU and its young, desperate militants. Actually they are an ideal foil for the regime, justifying its austere form of rule. Karimov and the IMU are bosom enemies that complement each other.
If Tashkent makes no moves towards reform and reserves its torture chambers intact, then it is highly likely that the EBRD and the IMF will withdraw from any financial role in the republic, as they have already done in Belarus and Turkmenistan next door. Karimov is not quite the pariah in the West as Niyazov is, the batty Turkmen president. Karimov has even done a deal with the US, whose emissary for the region, Elizabeth Jones, has already hauled the regime over the coals for its dismal record over human rights. Democracy and liberal ways are not for Uzbekistan so long as Karimov is in full charge.
Economy on the track of recovery
The economy is curiously not doing so badly as all that. Officially it is the only one in the CIS (which leaves out the Baltic states) that is larger than twelve years back, being registered at 109 over 1991. Belarus and Turkmenistan, the other non-reformers, came in in the 90s. These are their own figures of course. But the IMF medicine that was accepted elsewhere has not been a wholly unmixed blessing. The existence of firm exchange controls in Uzbekistan preserved it from the currency crash that afflicted Russia and Kazakstan in 1998, as also Ukraine and other CIS republics. The Ferghana Valley is a rich, fertile crescent of territory. Uzbekistan is not as wretchedly poor as several of its neighbours. It is the pivot of Central Asia; and the Karimov regime looks as secure as any in its region. As for Western criticism, Karimov gave his answer by quoting Kipling at the EBRD meeting. "East is East and West is West and never the twain shall meet." Not in his time at any rate!
LUKoil plans to sign gas PSA deal with Uzbekistan
LUKoil Overseas Holding Ltd plans to sign a production-sharing agreement on the Kandym-Hauzak-Shady gas project in Uzbekistan. LUKoil Overseas, which handles foreign projects by Russian oil major LUKoil, said in a press release that Azat Shamsuarov, the company's senior vice chairman, made the announcement during the European Bank for Reconstruction and Development's (EBRD) annual business forum, which took place in Uzbekistan's capital Tashkent.
The Kandym-Hauzak-Shady group of fields, which is in the Bukhara-Khiva district, contains a probable 300 billion cubic metres of gas. A direct investment of US$760m and overall investments of US$1bn would be involved. Production would peak at 8.8bn cu. m annually, Interfax News Agency reported.
LUKoil Overseas was invited to the forum as one of the EBRD's partners in the Commonwealth of Independent States. The two signed a six-year syndicated benchmark financing loan agreement for US$80m recently.
The loan is intended to refinance earlier credits; to develop the major Sibirskoye oil field in the north of Russia's Perm region; to improve efforts to recycle associated gas; and for automation and IT upgrades.
The first tranche of the benchmark finance facility is expected in the near future. LUKoil Overseas will draw the rest if and when needed during the remainder of this year.
Uzbekistan to get back on track with the IMF
The International Monetary Fund (IMF) will initiate discussion with Uzbekistan on the continuation of coopertion following lifted trade restrictions, reforms in agriculture and the standardisation of currency exchange rates, the IMF European II Department director, John Odling-Smee, said, Interfax News Agency reported. Funding to Uzbekistan was cut off in 1996 under a stand-by programme. When the limitations of the conversion of foreign currency were imposed, agreed cooperation terms were broken.
Uzbekistan sent a special memorandum to the IMF at the beginning of last year pledging to speed up market reforms, regulate various exchange rates and promise the convertibility of the national currency by the end of 2002. The functioning of the programme under the supervision of IMF officers should have ended with the resumption of financial cooperation with the fund.
Odling-Smee, who arrived in Tashkent for the EBRD yearly meeting, stated that since the beginning of 2002 Uzbekistan has made comforting progress in reducing inflation through a strict monetary and fiscal policy. It has opened access to its currency market, launched farming reforms, and taken steps to perk up the financial situation in the energy sector. In the business sphere however, there are no signs of improvement, which could be somewhat due to supplementary restrictions in trade, the IMF official was quoted as saying.
EBRD working with Uzbekistan to make economy more stable
The chief economist for the European Bank for Reconstruction and Development (EBRD), Willem Buiter, said foreign investment in the Uzbek economy reached US$150m in 2002, Interfax News Agency reported. The statement was made during a news conference dedicated to the presentation of the new version of the EBRD report for the development of countries that have transition economies.
Reaching US$6 is the per capita foreign investment in Uzbekistan and it is the lowest among all the other countries in Central Asia that work with the EBRD, Buiter stated.
Last year, foreign investment in Central Asia reached US$2.4bn and US$2.1bn of that was invested in the economy of Kazakstan. Economic growth is anticipated to be about 2.5% for Uzbekistan and inflation is expected to reach about 18.4% in 2003, the EBRD said in the report.
Economic growth is Uzbekistan is looking rather low, Buiter said. If drastic reforms are not put into practice, progress cannot be expected in the economy. "There is a whole list of elementary market reforms," he was quoted as saying. The necessary measures are to unify the national currency rate and to establish a free market of currency in Uzbekistan. The unification of the currency rate will not harm the country's economy, but, quite the opposite, will benefit it, Buiter said.
It is not feasible to have business in the country without the unification of the currency rate, he noted. Additionally, measures need to be taken to ease up trade and lower trade barriers, both physical and administrative, he said. It is essential to lower customs duties and develop border trade. In addition, it is necessary to conduct privatisation in those areas where the state is acting inefficiently, he said. The state should also take measures to provide social guarantees to citizens and develop trade in agricultural products and the banking system.
FOREIGN LOANS & AID
Uzbekistan wins US$1m aid for corporate governance
The Asian Development Bank has approved a US$1m technical assistance grant to help Uzbekistan improve corporate governance, and restructure its enterprise sector, Big News Network.com has reported.
The grant is intended to strengthen the policy, legal, and regulatory framework for the corporate sector, launch restructuring initiatives in the state enterprise sector, and improve regulatory oversight.
The bank assistance will evaluate sector vulnerabilities, assess the adequacy of policies, and recommend regulatory and institutional reforms.
It will also help develop effective mechanisms for involving commercial banks, in financial restructuring of enterprises.
"Uzbekistan has come a long way at the policy level in reforming the state-owned enterprises sector and private sector development, but a lot of difficulties remain at the operational level," says Ying Qian, ADB Principal Financial Economist (Governance, Finance and Trade).
A weak legal environment and underdeveloped supporting infrastructure, including financial management systems and capital markets, have resulted in poor corporate governance.
As well as strengthening the legal and judicial framework to support enterprise restructuring, execution of pledges and resolution of commercial disputes, the TA will simplify the framework to promote private sector development.
It will also evaluate the need to establish an enterprise restructuring equity fund, that could take up strategic long-term equity investments, to effectively reduce Government ownership and attract private enterprise.
Of the 110,000 registered enterprises in Uzbekistan, half have gone through a first round of corporatization and privatisation through the stock exchange, auctions, or tenders. The State holds shares in more than 3,600 enterprises, including 168 strategic enterprises in which it holds more than 25% of the shares. In 2000, enterprises with State holdings accounted for more than 86% of the total losses of the enterprise sector, with the figure climbing to 94% in 2001.
Bankruptcies have been on the rise due to unfavourable economic conditions and a sharp depreciation in the official exchange rate. Progress in restructuring has been slow because of weaknesses in the legal and regulatory framework and concerns over the social impact of restructuring.
Restructuring of agricultural enterprises since 1998 has resulted in more than 400,000 farm employees losing their jobs. The Ministry of Labour estimates that an additional 60,000 will become jobless annually due to bankruptcy and 55,000 due to restructuring in urban areas.
The total cost of the project is estimated at US$1.45m equivalent, of which the Government will contribute US$450,000. The project is due for completion around December 2003.
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