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Central Asia Report: February 21, 2003

21 February 2003, Volume 3, Number 8

TASHKENT'S REFORM RECORD IN THE DOCK IN RUN-UP TO EBRD JAMBOREE. President Islam Karimov reviewed Uzbekistan's economic performance in 2002 at a session of the Cabinet of Ministers in Tashkent on 17 February. While he cited numerous positive statistics in vindication of his economic policies, he acknowledged certain shortcomings in agricultural production, which he blamed on regional officials, as well as rising employment and depressed domestic manufacturing, which he blamed on shoddy goods imported or smuggled into the country from China via Kazakhstan and Kyrgyzstan. His speech amounted to a defense of his government's economic decisions. By no coincidence, it was delivered on the same day as an International Monetary Fund (IMF) delegation arrived in Uzbekistan to assess the government's progress in implementing promised reforms.

Meanwhile, the Brussels-based International Crisis Group (ICG) issued a scathing report on 18 February titled "Uzbekistan's Reform Program: Illusion or Reality?" It concluded that there had been almost no progress in democratization or civil-society development despite strong encouragement from the international community, especially since Uzbekistan garnered worldwide attention in the wake of the 11 September 2001 terrorist attacks on the United States. As for economic reforms, the report registered failure on all the key points of the IMF Staff Monitored Program agreed to in January 2002.

Karimov's two-hour speech on 17 February, which was broadcast on Uzbek television, contended that favorable conditions had now been created for developing private businesses. He claimed that there were almost a quarter of a million small business enterprises operating in the country and that the non-state sector contributed 73 percent of gross domestic product. (He went on to say, however, that the private sector's share in GDP was 35 percent, without explaining the difference between "non-state" and "private.") The president said that GDP in 2002 grew by 4.2 percent compared with the previous year, industrial output rose by 8.5 percent, and agricultural production by 6.1 percent. Karimov added that privatization must be as widespread as possible and that shareholders must be protected. But as AP commented on 18 February, here he was echoing promises he has made before yet has repeatedly failed to keep despite international pressure. In fact, recent presidential decrees have apparently undermined the legal basis of privatized companies by hinting that they could be renationalized, as well as burdening import-export companies with new capital restrictions that severely hamper the ability of small and medium-sized companies to trade.

The centerpiece of Karimov's speech was a tirade against the cheap, low-quality Chinese goods with which "powerful, well-organized, corrupt" Kazakh and Kyrgyz mafias allegedly flooded Uzbek markets until Tashkent took measures to stem the tide. Although he railed primarily against Chinese consumer products, he also alluded to the illegal import of supposedly contaminated food from Kazakhstan and Kyrgyzstan, faulty medical equipment, and out-of-date medicines. "No country undergoing [postcommunist] transition would survive in such a situation, with uncontrolled goods being smuggled into the country. Uzbekistan, like any other state, could not tolerate such a situation� This would make the economy of any country explode," Karimov said. He added: "What should we do? Should we open our doors to all commodities and say 'Come in, everybody'?" His solution was to impose a draconian system of import tariffs and extra documentation requirements on private traders in summer 2002, followed this year by tight frontier controls that have practically sealed much of the border with Kazakhstan and Kyrgyzstan (see "RFE/RL Newsline," 21 January 2003). The result has been the ruination of many local traders, empty bazaars, and a scramble by Uzbek consumers to find ever-scarcer subsistence items and household goods.

Despite Karimov's attempts to scapegoat unscrupulous foreigners for this growing crisis, most economists would probably attribute it more readily to bad decisions made in Tashkent.

As for tackling the crisis, Karimov had only words to offer on 17 February, telling his audience that Uzbek markets should be filled with Uzbek goods and calling for domestic production of consumer goods to be boosted. "Only in this way can we safeguard people's jobs and resolve the difficult problem of the unemployed," he said, without offering any unemployment statistics. He also attacked local distributors, claiming that $3.08 billion soms (about $3 million) worth of goods were languishing in warehouses instead of being brought to consumers. Meanwhile, although Uzbekistan's border controls remain tight, the cabinet did adopt measures earlier this month intended to stimulate trade, for example, by exempting wholesalers from paying value-added taxes, hoping thereby to bring more domestically produced goods to markets and thus reduce the need to import cheap consumer goods from neighboring countries (see "RFE/RL Newsline," 6 February 2003).

Turning to setbacks in agricultural reform, Karimov criticized "local officials" whose entrenched corruption and perversion of market practices amounted to a "betrayal" of the hopes for prosperity of millions of farmers. Regional and district administrations lorded it over cooperative farms, illegally intervening in the farms' affairs and dismissing and appointing whomever they liked, Karimov said. Governors acted like feudal autocrats, "thinking they are authorized to force people to work," while paying mere lip service to the law and their obligations. As an example, the president singled out (without mentioning by name) the former governor of Kashkadaryo Oblast, Bakhtiyor Hamidov, who was fired without explanation on 26 December. Karimov charged that six farm managers were summarily dismissed by Hamidov on the pretext that they had failed to reach unrealistic cotton targets set by the governor and that Hamidov had made other arbitrary decisions without consulting anybody or complying with instructions from Tashkent, Uzbek television reported on 17 February.

Uzbekistan's reform record was subjected to blistering criticism in the ICG's report, which was released on 19 February, titled "Uzbekistan's Reform Program: Illusion or Reality?" Issued in advance of the annual meeting of the European Bank for Reconstruction and Development (EBRD), scheduled to be held in Tashkent on 4-5 May, the report called on Western state donors and global financial institutions to stop taking Karimov's promises of reform at face value and to stop treating his dictatorship leniently due to its current (though diminishing) importance in the international coalition against terrorism. Instead, donors must put much tougher conditions on future loans and assistance: Attempts to encourage reforms so far have mostly failed, and there is little reason to think that present international policies, which are still all carrot and no stick, will persuade Tashkent to change course significantly in 2003.

The ICG pointed out that Karimov had taken no serious steps to fulfill any of the promises he made to U.S. President George W. Bush in March 2002, which were set down in the U.S.-Uzbek Agreement on Strategic Partnership and committed Uzbekistan to establishing a multiparty system, holding free and fair elections, and respecting media freedom and human rights. The report further said that, despite being offered major incentives, the government had failed to achieve the basic commitments it made to the IMF to liberalize the economy, although it did achieve some less arduous technical requirements. Large-scale agricultural reforms, improvements to the banking system, trade liberalization, and convertibility of the currency, agreed to as part of the IMF Staff Monitored Program, all failed to materialize by the original July 2002 deadline or the extended deadline two months later. The report attributed this failure in large part to pervasive corruption; an unresponsive, clogged bureaucracy; and, in the words of ICG Central Asia Project Director David Lewis as cited in an ICG press release on 18 February, "a political system dominated by vested interests at all levels that have a considerable investment in retaining the status quo."

The report's recommendations to Uzbekistan included a new push to implement economic-reform commitments made to the IMF and moves toward greater democracy, such as registering all political parties and human rights groups, stemming unwarranted arrests and police brutality, and the introduction of press freedoms. The EBRD was enjoined to make sure that its May meeting in Tashkent did not merely turn into a propaganda coup for the regime but accelerated reforms and highlighted the government's shortcomings, particularly to the local population. To this end, the report advised the EBRD to "arrange coverage of the meeting by an independent television producer and for the resulting program to be shown on Uzbek television with a full and correct translation."

The ICG report comes on the heels of similar, albeit more diplomatically phrased, urgings from the European Union that Tashkent accelerate reforms in advance of the EBRD meeting. In a statement issued on 27 January following a session of the EU-Uzbekistan Cooperation Council, the EU expressed concern over the use of torture in Uzbekistan and advocated greater attention to improving legislation, ensuring respect for the rule of law, combating drug trafficking and money laundering, and preventing illegal migration (see "RFE/RL Newsline," 28 January 2003). The perfunctory language used in the statement testified to Brussels' frustration with the slow pace of reform in Uzbekistan, according to a commentary on 7 February. Meanwhile, the statement said: "the EU noted that the EBRD meeting...would focus international attention on the country. The EU expressed the hope that, by the time of the meeting, Uzbekistan would demonstrate to the international community further political and economic changes."

CHINA SEEKING TO EXPAND ECONOMIC COOPERATION WITH UZBEKISTAN, TURKMENISTAN. While Uzbek President Islam Karimov publicly lambastes the influx of Chinese goods (which have the reputation, deserved or otherwise, throughout Central Asia of being poorest-quality, "single-use" products) into Uzbek markets, China has recently dispatched a number of well-received economic delegations to Uzbekistan, testifying to a growing interest in expanding investment and trade ties with Central Asia. Last month, a business delegation from China's westernmost province, Xinjiang, held talks in Tashkent on the prospects for expanding cooperation and increasing investments in a host of sectors, including the hydrocarbon, chemical, and pharmaceutical industries; highway construction; agriculture; and food processing (see "RFE/RL Newsline," 23 January 2003). On 18 February, said that the Uzbek state hydrocarbon company O'zbekneftegaz had joined a Chinese oil company, Tu-Ha, in collaboration with Xinjiang International Industry Co. to implement a joint oil-extraction project at the Gazli deposit in northeastern Uzbekistan.

On 13 February, Uzbek and Chinese government delegations met in Tashkent for the fifth session of the intergovernmental commission on trade and economic cooperation. The officials noted that bilateral trade turnover grew to $130 million in 2002, an increase of 20 percent over the previous year (see "RFE/RL Newsline," 14 February 2003). The Chinese delegation was headed by Deputy Minister of Foreign Trade and Foreign Economic Cooperation Zhou Ke Ren, Uzbek radio noted on 13 February. After talks with his Uzbek counterpart Elyor Ganiev, Zhou signed an agreement that Beijing would provide Tashkent with 5 million yuan (about $600,000) in no-strings assistance to develop business contacts, with promises of more aid to come, and Uzbek television reported on 15 February.

The Chinese delegation traveled to the Turkmen capital Ashgabat on 15 February, ITAR-TASS reported. Currently, 19 investment projects, with a total value of about $210 million, are under way in Turkmenistan in cooperation with Chinese companies. Ten of the 19 are in the oil-and-gas industry and are worth $196 million, the news agency said. President Saparmurat Niyazov, who received Zhou the following day, invited China to expand its involvement in the Turkmen economy, for example, by investing in oil projects in Turkmenistan's sector of the Caspian Sea or by exploring promising hydrocarbon reserves along the Amu Darya River and near the town of Seydi, reported. Niyazov also noted that Turkmen oilmen commonly used Chinese equipment in their work, the purchase of which had been facilitated by low-interest loans from Beijing. The Chinese side promised to open a new credit line worth 100 million yuan (about $12 million) for further exploitation of Turkmen oil and gas fields. Zhou also expressed interest in China's part in investing in Turkmen railroads, agriculture, and the silk industry, said on 18 February.

TRACKING DRUGS IN TAJIKISTAN. Tajik drug-indictment officials set a new record by seizing a 345-kilogram consignment of heroin on the night of 18-19 February, AP and Asia-Plus reported. It was the largest single haul in the republic's history, according to Major General Tohirjon Normatov, head of operations and inspections at the Tajik Interior Ministry. This distinction was previously held by a 280-kilogram load of heroin confiscated by Russian border guards on the Tajik-Afghan border in December 2002. Reuters said on 10 February that Russia had deployed 10,700 border guards along this frontier to try to stem the flow of drugs and weapons from Afghanistan.

This consignment, however, with a street value of approximately $10 million, was confiscated on Tajikistan's northern border with Uzbekistan. The drugs had passed from Afghanistan across the Panj River into Tajikistan, through southern Khatlon Raion, through the capital Dushanbe northward into Sughd Oblast's Ayni Raion, where they were seized together with some 20 members of an organized-crime gang, AP reported on 19 February, citing an unidentified source in the Interior Ministry. The source claimed that police had monitored the drugs' passage through the country all the way from the Afghan border. If true, this would indicate extraordinary professionalism, confidence, and patience on the part of Tajik law-enforcement officials, especially since Normatov told journalists that the heroin did not move as a single package but as many small packages traveling along different smuggling routes and brought together in Sughd Oblast. Perhaps more likely, as Normatov himself indicated to Asia-Plus, was that the drugs had been seized in a special operation following a tip-off about a drug ring operating in Ayni Raion.

On the other hand, Asia-Plus reported that on 18 February at a spot on the Tajik-Uzbek border, officers from Tajikistan's presidential Drug Control Agency seized more than 30 kilograms of heroin hidden in a truck that the agency had successfully been tracking from Dushanbe.

Meanwhile, Russian border guards in Khatlon discovered yet another drug cache containing 21 kilograms of heroin last weekend, Asia-Plus reported on 17 February. More than 600 kilograms of narcotics has already been seized in Tajikistan in 2003, of which two-thirds was heroin, the Drug Control Agency's press service said on 13 February. Last year, Russian and Tajik border guards confiscated a record 6.5 tons of narcotics, 4.9 tons of which was heroin (see "RFE/RL Newsline," 9 January 2003).

These figures bear out a remark made by Russian President Vladimir Putin to his Tajik counterpart Imomali Rakhmonov at last month's informal CIS summit in Kyiv to the effect that efforts to attack the heroin problem at its source by inducing Afghan farmers to stop growing opium poppies have largely failed. Putin took that opportunity to offer closer cooperation between Russia's and Tajikistan's intelligence services to track and seize the drugs once they inevitably start in motion. The United States is also providing new training programs and financial assistance to the Drug Control Agency and Tajik Border Protection Committee (see "RFE/RL Newsline," 29 January 2003). On the domestic front, the Drug Control Agency has also reported an alarming rise in the number of drug addicts in Tajikistan during 2002. According to Asia-Plus on 13 February, there are 8,000 registered addicts in the country, 70 percent of whom are hooked on heroin. But as the agency's department chief for legal drug circulation, Safol Musoev, acknowledged, the true number of drug addicts in the republic could exceed the official statistics by eight to 10 times.