EurasiaNet Eurasia Insight - Uzbekistan: Do IMF and ADB Visits Signal Rapprochement with The West?

EURASIA INSIGHT

UZBEKISTAN: DO IMF AND ADB VISITS SIGNAL RAPPROCHEMENT WITH THE WEST?
7/12/07

Recent high-profile missions from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) lauded Uzbekistan’s economic performance, prompting some political analysts to wonder whether a thaw is in the offing between Tashkent on the one hand, and the United States and European Union on the other.

An IMF staff mission visited Uzbekistan from June 4-13. The mission’s statement posted on IMF’s website, lauded Uzbek authorities for "their excellent cooperation and frank exchange of views." In sharp contrast to previous assessments, which complained about a lack of will to carry out structural reforms, the latest mission statement noted that the Uzbek economy continues "to perform well," showing 9 percent growth for the first quarter of 2007. "There are indications that inflation has eased and confidence in the banking system has improved," the statement added. [For background see the Eurasia Insight archive].

The IMF adopted a restrained approach on government taxation and regulatory policies. Within the past year, entrepreneurs in the country have complained bitterly about a confiscatory tax system and excessive regulations, yet the IMF mission stepped gingerly in these areas, noting euphemistically that "fiscal policies have remained cautious, while the tax burden declined."

In addition, the IMF mission said it was "encouraged by the intention of the authorities to conduct an appropriately tight monetary policy," and urged Uzbek authorities to "consolidate the improved confidence in the banking system."

Although the Uzbek economy has experienced moderate growth, the tenor of the IMF statement caught the attention of many regional analysts, especially when considering the IMF felt compelled to briefly suspend ties with Uzbekistan in 2001 over Tashkent’s reluctance to implement reforms.

Experts believe that the goal of the IMF’s visit and laudatory statement is to broker reconciliation between Uzbekistan and the West, especially, the United States, after several years of a deep diplomatic freeze, connected with the 2005 Andijan events. [For background see the Eurasia Insight archive].

Also in June, visiting ADB representatives sounded an optimistic note on Uzbekistan’s economic growth prospects. The Uzbekistan Today information agency quoted Liqun Jin, a bank vice president, as characterizing the Central Asian nation as "an important member of the ADB."

Endeavoring to keep Uzbekistan firmly within the Kremlin’s sphere of influence, a Russian delegation led by First Vice-Premier Sergei Ivanov visited Tashkent early in July. The key issue on Ivanov’s agenda was energy development. At the conclusion of his visit, Ivanov signaled Russia’s desire to reach a deal with Uzbekistan on the construction of a new natural gas pipeline. Officials also signed a deal to jointly construct aircraft.

On July 11, Uzbek and Russian authorities announced the signing of three agreements covering labor migration, according to a report distributed by the Itar-Tass news agency. One accord solidifies the framework for the protection of migrant laborers’ rights. The others are designed to make it easier for the two governments to combat illegal migration. About 500,000 Uzbeks engaged in migrant labor in Russia during 2006, according Russian Migration Service officials.

The three migration agreements are viewed as a vital diplomatic success for Tashkent. President Islam Karimov’s administration has paid increasing attention to labor migration in recent years, given that it a major source of hard currency income for the country. According to some estimates, remittances sent by Uzbek labor migrants total about $500 million annually, i.e. about as much as the revenue generated by cotton, one of Uzbekistan’s key exports. Up to 3 million Uzbek citizens reportedly leave the country every year to work abroad, mostly in Russia. Labor migration helps ease the pressure generated by severe unemployment inside Uzbekistan, a condition that many officials see as perhaps the most serious threat to internal security.

The evident US and EU desire for a rapprochement offers tacit recognition that sanctions imposed in the wake of the Andijan events have been ineffective in altering Uzbek government behavior. With much of its strategic exports -- including oil and gas, gold, cotton and other agricultural products -- going to Russia, China and other "non-Western" partners, Tashkent has largely insulated itself against the threat of Western economic punishments.

Some experts say Tashkent is welcoming the Western overtures out of a desire to play Washington and Brussels off against Moscow and Beijing. Maintaining good ties with all four powers, many officials in Tashkent believe, would offer a strong security guarantee for the incumbent administration.

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