The EBRD’s new strategy for Uzbekistan claims that only through a fuller embrace of the principles of free markets and private entrepreneurship can the country hope to unlock its rich economic potential, which will in turn allow the EBRD (European Bank for Reconstruction and Development) to mobilise additional financial support.
The strategy expresses serious concerns about the state of genuine multi-party democracy, respect for the rule of law and human rights in
The strategy also calls for the forthcoming EBRD annual meeting in Tashkent, May 4-5, to be a forum for open debate through which the Uzbek authorities can achieve a better understanding of the costs of the present policies for its own people and Central Asia as a whole, as well as the significant benefits that would flow from a more open approach. The strategy is available at www.ebrd.com.
The strategy recognises some economic progress, such as devaluation of the official exchange rate to bring it closer to the market rates, lifting of some restrictions on access to foreign exchange, and some initial reform of the state procurement system for agriculture. On the other hand, several deadlines for currency convertibility have lapsed, and new trade barriers have been erected. Foreign direct investment flows, on a per-capita basis, are the lowest of all transition economies. The economy remains generally closed to competition, with a high degree of direct state involvement and control.
The strategy notes some signs of democratic progress, such as formal abolition of censorship, lifting restrictions on access to the internet, and long prison sentences for law enforcement officials found guilty of torturing prisoners. However, Uzbekistan still has an overly strong executive branch, a weak judiciary and systematic violations of the freedom of religion, expression, association and assembly. There are arbitrary arrests as well as torture of detainees to obtain confessions or incriminating statements. The recently published report of the UN special rapporteur on torture states that torture is “systematic” in Uzbekistan.
The strategy recommends that the bank continue intensive policy dialogue with the Uzbek government and monitor progress on seven benchmarks that would accelerate Uzbekistan’s course of political and economic reform:
In the political sphere:
- Greater political openness of the system and freedom of the media.
- More open political processes, including registration and free functioning of independent local NGOs.
- Improvements in the country’s human rights record.
In the economic sphere:
- Further progress in eliminating foreign exchange distortions and the achievement of current account convertibility.
- Opening of the economy to competition; eliminating trade barriers; privatisation of large state enterprises.
- Adoption and first steps in implementation of banking sector reform programme.
- Progress in adjusting tariffs in public utilities towards cost recovery levels, most importantly in the energy sector.
The EBRD will conduct a review within a year in the context of its country strategy update. Should no progress be made in these areas the scope for new investments in Uzbekistan during the strategy period 2003-04 will be limited, both in the private and public sectors.
The strategy urges Uzbekistan to adopt a regional approach to economic development built around a few specific areas for joint action such as energy, water, and regional transportation infrastructure that would bring significant benefits to all countries of the Central Asian region.
The EBRD’s operational priorities will be to support private investment and entrepreneurship, chiefly through:
Support of private investment and entrepreneurship. For the development of SMEs, the bank will consider a new credit line with local banks, as well as additonal projects under its direct investment facility. The bank will continue to finance only those SMEs able to demonstrate financial viability without benefit of access to subsidised foreign exchange. The bank also remains willing to consider support for the government’s privatisation programme.
Strengthening of financial institutions. If Uzbekistan were to move decisively towards market liberalisation and structural reforms, the banking system would undergo very significant adjustment a process the bank is willing to support through assistance in the privatisation of selected local banks. The bank will also continue its cooperation in the financial sector in the context of credit lines and institution-building technical cooperation funds.
Critical infrastructure. Transportation, municipal services and the energy sector are critical infrastructure bottlenecks restricting improvements to market access for private enterprises and improvement of the economy’s competitiveness. The bank will continue to support these sectors.
The EBRD, which has invested €642mn in Uzbekistan, has had a falling level of commitments in recent years as a result of the country’s unfavourable investment climate. Business volume in 2002 was €34mn.