The Failure of Reform in Uzbekistan: Ways Forward for the International Community

EXECUTIVE SUMMARY AND RECOMMENDATIONS

Uzbekistan occupies a key strategic position in Central Asia and has a strong security relationship with the U.S. but its political system is highly repressive and its economy is barely reformed since Soviet times. Economic decline and political sclerosis threaten internal stability and undermine regional security. The international community has long urged political and economic reform, but with little success. With no significant progress on either front in 2003, it is time for the U.S., the EU and international financial institutions to begin to shift policies: reducing lending and assistance to the central government, while increasing engagement with society and the private sector.

In March 2003, the European Bank for Reconstruction and Development (EBRD) set out benchmarks for political and economic reform that were to be met if lending was to continue. There has been little progress on any of these. U.S. attempts to promote reform within the context of a bilateral "partnership" that has a heavy security component, have also made no significant headway. There are no grounds for the State Department to certify, as required by the U.S. Congress, that Uzbekistan has made "continuing and substantive progress" on political liberalisation, human rights, and economic reforms.

Although independent groups increased their political activity in 2003, the government's attitude to political liberalisation has not changed. Opposition parties have been denied registration, their members face harassment and sometimes arrest, and there is increasing pressure on NGOs and civil society generally. It seems unlikely that independent candidates will be permitted to contest parliamentary elections in December 2004. Freedom of expression remains extremely limited. Despite the removal of formal censorship, newspapers and broadcasting remain almost exclusively under state control, and journalists work under constant pressure from the authorities.

There is also no evidence of overall human rights improvement. Reports suggest that torture is still widespread in places of detention, despite the government's rhetorical commitment to act against it. None of the UN Special Rapporteur on Torture's 22 recommendations has been fully implemented. A government action plan against torture has had little impact on the reality of the criminal justice system. Human rights defenders and ordinary people who speak out against local or central authorities face harassment or arrest from law enforcement agencies.

Uzbekistan continues to suffer serious economic stagnation, unemployment is rising, and living standards are declining. While central Tashkent retains an air of relative prosperity, the reality for many in the capital, and even more so in the provinces, is growing poverty. The economy grew by only 0.3 per cent in 2003, according to the IMF, and GDP per capita has fallen every year since 1998, reaching just U.S.$350 per capita in 2003. With foreign investment miniscule, the regime survives by exporting raw materials, notably gold and cotton. The only way to deal with the economic crisis is through far-reaching structural reforms, but the political elite is reluctant to embrace changes that would undermine its own privileged position.

A long-awaited announcement on convertibility of the currency came in October 2003, but the reality has been disappointing. Although in theory the currency is now convertible, in practice secret and unofficial regulations continue to limit access to foreign exchange. Severe foreign trade restrictions remain, have led to a huge rise in contraband and corruption at borders, and have badly undermined small business development. The business environment is hostile, and state organs continue to interfere with small and medium-sized enterprises.

Other key issues raised by the EBRD have not been addressed. Privatisation of state enterprises has hardy progressed, and banking reforms have stalled, ensuring that informal financial transactions continue to dominate the economy. Capital flight has increased, as Uzbek businessmen increasingly choose to invest abroad.

Economic failure has provoked social discontent. Despite the state repression, factory workers staged rare strikes in 2003 over unpaid wages, and pensioners went out on the streets demanding their payments. Young people, unable to find employment, increasingly seek to leave the country. The most active and well-educated citizens are moving to Russia or the West.

This deteriorating socio-economic environment is provoking a rising tide of popular frustration, which in some regions fosters support for radical Islamist groups. Expectations that increased Western engagement after 11 September 2001 would lead to regime liberalisation have been disappointed. Instead, there is growing disenchantment with the U.S. military presence and increasing identification of Western institutions and governments with the repressive regime.

If the EBRD, the U.S. and other donors like the EU fail to respond to Uzbekistan's refusal to move forward on political and economic reform, their own credibility and that of the wider international community will be seriously undermined in the region. There is only a limited amount outsiders can do to encourage reforms if the domestic political will to implement them is absent. When the government fails to live up to its commitments, however, the international community needs to speak out as well as work all the more with the many people within the country who want things to change for the better.

To the Uzbekistan Government:

Regarding human rights and democratisation

1. Permit the registration of independent political parties and participation by independent candidates in parliamentary elections in late 2004.

2. Strengthen media freedom and the free flow of information by:

(a) ending harassment and censorship of journalists and media outlets;

(b) permitting the reopening of newspapers closed since March 2002;

(c) relaxing the system of state control over the media through reform of the Agency on Press and Information, easing registration requirements for media outlets, and instructing officials to end informal and formal interference in media operations; and

(d) undertaking an impartial review of all cases of imprisoned journalists.

3. Allow international NGOs and journalists to operate freely in the country, including by:

(a) revising Cabinet of Ministers internal decree N°523 that increases control over the activities of international NGOs;

(b) reviewing the registration procedure for international and domestic NGOs to ensure simple and quick registration; and

(c) revising Cabinet of Ministers decree N°56 and other internal documents that assert excessive control over financial assistance to NGOs;

4. Take immediate measures to begin implementing the recommendations of the UN Special Rapporteur on Torture, through:

(a) a revised Action Plan on Torture that addresses the UN recommendations and is published in the mass media;

(b) a law that details police responsibility for violent actions against prisoners;

(c) a wider review of law enforcement agencies that addresses the systemic reasons for torture, decrease the numbers of such agencies, and ensures political control over their actions; and

(d) more rapid moves towards legal reforms, in particular greater independence of the judicial system.

5. End the harassment of human rights defenders; simplify the registration procedure for all groups engaged in human rights, and invite the UN Special Rapporteur on human rights defenders to visit.

Regarding economic reform

6. Begin liberalising cross-border trade as the most effective way of tackling growing poverty, massive corruption, and reviving legal small business, including by:

(a) cutting high tariffs on cross-border trade, for both individual traders and companies;

(b) ending minimum capital requirements and other restrictions on creating wholesale trade companies;

(c) ending restrictions on trade at bazaars, such as government decree N°330, on non-food items; and

(d) simplifying the tax and regulatory environment for small and medium-sized enterprises (SMEs) engaged in trade.

7. Remove restrictions, formal or informal, on convertibility; relax restrictions on circulation of the national currency, including payment of wage and pension arrears, allow market mechanisms to determine the exchange rate, and permit gradual devaluation of the sum.

8. Implement banking sector reforms that increase independence of banks from the state, and ensure confidentiality of accounts, and remove restrictions on cash transactions.

9. End attacks by state organs and government officials on private property, notably by:

(a) prosecuting officials involved;

(b) upgrading the Department for Support and Protection of SMEs under the Ministry of Justice;

(c) establishing an independent board of appeal for entrepreneurs, including lawyers, representatives of business, and international representatives; and

(d) supporting moves to provide greater legal support and advice for entrepreneurs.

To the EBRD:

10. Suspend new lending to the public sector and state-owned companies, including banks, until there is evidence of serious commitment to a reform program aimed at increasing living standards and economic activity.

11. Monitor directly all sub-projects under SME credit lines.

12. Increase due diligence on private sector investments and ensure greater transparency, including by:

(a) rejecting lending to private sector projects that benefit leading members of the government; and

(b) avoiding pre-privatisation investments in projects such as Asakabank.

13. Expand microcredit and small-scale lending and encourage more lending through credit unions and less formal community credit networks.

14. Develop internal resources in headquarters and country offices to monitor adherence to Article 1 commitments on human rights, economic reform and democratisation.

15. Seek new ways to engage with the government on policy issues, considering:

(a) a Council on Foreign Investment to join private sector and IFI representatives with government officials in regular policy dialogue; and

(b) a joint business council with international and local private sector involvement to seek ways to improve the business environment.

16. Broaden the scope of Business Advisory Services and other support networks by placing much greater emphasis on legal services for business.

To the U.S. Government

17. Deny Uzbekistan certification on progress towards political liberalisation and human rights improvements under the Foreign Operations Act while:

(a) ensuring that funds remain allocated for key sectors such as media, NGO development, legal reform, education, health, and support for private enterprise;

(b) ending financial aid to the military and the law enforcement agencies, except in narrowly defined cases where clear national security interests are at stake; and

(c) offering significantly increased aid in social and economic sectors if serious systemic change is being achieved according to an agreed timetable.

To the European Union (EU):

18. Review the Partnership and Cooperation Agreement (PCA) taking into account Uzbekistan's failure to observe commitments it has made on human rights, democratisation and economic reform.

19. End TACIS funding for projects with the parliament until independent candidates are permitted to contest elections.

20. Seek new ways for additional engagement, including more funding of projects that focus on grass-roots development, poverty alleviation, and education.

To the Shanghai Cooperation Organisation:

21. Use the May 2004 summit in Tashkent to work for more open trade policies and regional economic growth as an important aspect of regional security.

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