Getting hard currency in and out of Uzbekistan, with its notoriously tight controls over cash flows, is about to become even harder as Tashkent brings into force draconian new checks over bank transfers that will hit investors and individuals, foreign and local alike.
The new rules, announced by the UzDaily.uz website on June 17, launch a new monitoring system that forces banks to report a wide range of bank transfers into and out of Uzbekistan to the tax authorities. The report said the rules were approved on June 12, but did not specify when they will come into force.
For foreign companies, these include fines received from local partners via transfer for breaching agreements. Dividends or profits repatriated abroad to foreigners who have founded companies in Uzbekistan also come under the rules. (The right to repatriate profits is theoretically assured to foreign investors under Uzbek legislation, but frequently breached due to the Byzantine hoops through which they must jump to repatriate their money.)
The rules also cover payments to non-residents for sales of shares in Uzbekistan-based businesses and of property in Uzbekistan, which will hit both foreign companies and foreign individuals.
The rules aren’t just targeted at foreigners: Uzbek citizens will also be hit as the transfers they receive and make come under scrutiny. Any transfers abroad from Uzbek banks by individual account holders above the equivalent of $10,000 per calendar year will come under the microscope, as will all transfers from abroad to their accounts from foreign companies.
Transfers of funds via international services such as Western Union and MoneyGram – used by many labor migrants abroad to send remittances home – are not covered by the rules.
The rail line at Hairatan, Afghanistan, on the border with Uzbekistan, through which U.S. and NATO military cargo to and from Afghanistan flows. (photo: Sgt. 1st Class Peter Mayes, 101st Sustainment Brigade, 101st Airborne Division Public Affairs)
Policymakers from the U.S., Europe, and Central Asia gathered last week in Riga to discuss the "commercialization" of the Northern Distribution Network, the military transport routes that ship military goods from the West into Afghanistan via the ex-Soviet states. The idea that the NDN can be converted into a "New Silk Road" of commercial Eurasian trade has been around for some time. And it's been debunked for about as long. But it's still kicking, and in fact now has become part of the State Department's talking points.
What became clear at the conference, though, is that while the NDN may have been a military logistics success, and while there is in fact a great deal of momentum towards transcontinental Europe-Asia land transportation, those two things have little to do with one another. There was occasional political rhetoric connecting the two: Latvian Foreign Minister Edgars Rinkevics said that he was "confident that the Northern Distribution Network has the good potential of becoming a commercially viable, long-term transit corridor also after 2014." And Deputy Assistant Secretary of State Lynne Tracy spoke of "the transition of these transport corridors from the success of carrying cargo supporting operations in Afghanistan to realizing their full potential as commercially competitive and efficient routes." But for the most part, the two conversations -- about the NDN and about commercial transcontinental transit -- were entirely separate.
Water was the hot topic as the leaders of Kazakhstan and Uzbekistan met in the Uzbek capital, Tashkent, on June 14.
Kazakhstan’s president, Nursultan Nazarbayev, struck a conciliatory note over access to Central Asian water resources, a subject which Uzbek leader Islam Karimov last year warned could lead to war.
“A great deal depends for our future on how [Central Asian states] cooperate and trust each other and together resolve our questions without hindering other states,” Nazarbayev said in remarks quoted by state news agency Kazinform.
“Our approaches on many aspects, including the water problem in the region, coincide,” he said of Kazakhstan and Uzbekistan. “And we want to send a friendly message to our neighbors that we ourselves have to resolve these questions. There are no unresolvable problems and questions.”
Speaking of the plans of neighboring Kyrgyzstan and Tajikistan to build hydropower projects on Central Asian rivers upstream, which Karimov strongly opposes, Nazarbayev said disputes could be resolved “only on the basis of negotiations and the strengthening of mutual trust, without confrontation.”
Karimov has long been a vociferous opponent of plans by Tajikistan and Kyrgyzstan to complete long-stalled hydropower dam projects -- Rogun on the Vakhsh River (the headwaters of the Amu-Darya) in Tajikistan and Kambarata on the Naryn River (which becomes the Syr-Darya) in Kyrgyzstan.
Sign promoting Rahmon and the Rogun hydropower project, in the town of Rogun. (photo: The Bug Pit)
The conflict between Uzbekistan and Tajikistan over the proposed Rogun dam could, as Uzbekistan President Islam Karimov has threatened, lead to war between the two countries. Thanks to the Pulitzer Center on Crisis Reporting, I was able to take a reporting trip to Tajikistan in April and May. And while a detailed report will be coming out later this summer, here's a bit of a taste, with some photos from Rogun:
The conflict, of course, is more than just about the dam, which is why it's so interesting – and also difficult to solve. The roots, everyone in Tajikistan told me, date from the 1920s, when Soviets drew borders of the two republics that rendered Tajikistan so dependent on Uzbekistan for any access to the outside world (as well as, from the Tajik perspective, depriving Tajikistan of the jewels of their culture, Bukhara and Samarkand). That was more or less irrelevant during the Soviet period, and early post-independence when the governments of the two countries got along. But as relations soured (due to a variety of reasons, including both governments' support of rebel groups agitating against their respective neighbors), Uzbekistan began to use its geographic position as a means of bullying Tajikistan – by requiring visas for Tajikistan citizens, by mining the border, cutting off train routes, raising import duties, and on and on. And Rahmon sees Rogun as not just a way to get out from under Uzbekistan's thumb, but to do a little bullying itself. This is an illuminating U.S. diplomatic cable from Wikileaks:
It doesn’t suggest confidence in a currency when a prominent company refuses to accept it. That’s especially true when the company is owned by the same folks printing the money.
Uzbekistan Airways, the Central Asian country’s state-run flag carrier, reportedly plans to limit the number of tickets it sells in exchange for Uzbekistan’s national currency, the sum.
The airline will adopt quotas to limit its intake of the hapless Uzbek sum from July 1, report Uzmetronom.com and Fergana News. Under the new rules, only World War Two veterans, some disabled, some business travelers, and those attending the funerals of immediate relatives may continue to purchase tickets for sums, Uzmetronom – a site believed to be used to distribute leaks from Uzbekistan's security services – reported June 7.
"All other citizens will have to buy tickets in US dollars,” Uzmetronom said. Cash only, it added.
Moscow-based Fergana News notes that the airline stopped accepting sums for trips originating outside of Uzbekistan in August 2011.
Anyone holding a sack full of sums won’t be surprised. Authorities have long failed to eliminate the black market for the currency. Dollars are currently exchanging hands at about 2,750 sums each, while the official exchange rate stands at 2,085 sums to the dollar. Even at official rates, though, it is difficult to get any bank to part with its dollars.
Fancy entering Uzbekistan’s telecom market? Russian mobile giant MTS's assets are up for auction and can be yours for about $300 million.
MTS, which was the largest mobile operator in Uzbekistan until last summer, withdrew from the country’s scandal-ridden telecom sector this year after it became embroiled in a shady taxation dispute that looked more like an official asset grab.
A "committee of creditors" of MTS's Uzbekistan subsidiary, O'zdunrobita, has decided to auction off the firm's assets, the Uzbek State Committee for Privatization, De-monopolization and Development of Competition announced through its Biznes-Daily Media website on June 3.
Officials set a reserve price at 600 billion sums (about $290 million at the official exchange rate), Biznes-Daily Media said. The deposit required to register for the auction is 20 percent of the reserve price ($58 million). Bidders may submit their applications by 6 p.m. Tashkent time on June 28. The auction will be held July 1.
In some ways, it's a deal. Last year, Michael Hecker, MTS's vice-president for strategy and corporate development, put the value of the company's Uzbekistan assets at over $1 billion.
Making sense of Uzbek economic figures is a difficult task. With no way to verify official data, observers must parse the limited information Tashkent drips out. And those official stats often appear more like a wish than reality.
So take the following in that spirit.
Citing parliamentary budget committee papers, the Novyy Vek newspaper reports that Tashkent posted a budget surplus worth 0.4 percent of GDP in the period from January to March this year.
The surplus stood at 86.7 billion sums ($41.6 million at the official exchange rate) in the first quarter of 2013, Novyy Vek said on June 4. Budget revenue was $2.58 billion (24.8 percent of the first quarter GDP) and expenditure totaled $2.53 billion (24.4 percent). The newspaper did not provide budget figures for 2012, but said the 2013 national budget was approved with a deficit of $575.5 million, or 1 percent of GDP.
"The main factors increasing the state budget's revenue … are the expanding tax basis and increasing tax collection," Novyy Vek reported, citing the parliamentary documents.
While local income and corporate tax rates have stayed largely unchanged over the past year, Tashkent increased the petrol tax by 20 percent in 2013 and has slapped unpopular new excise and customs duties on a wide range of imports, sparking inflation fears.
The U.S. State Department released its annual "Country Reports on Terrorism," which purports to summarize and analyze the "terrorist" threats around the world. Here is the report's summary of Central Asia in 2012:
Despite the absence of major terrorist incidents on their territory, governments in the five Central Asian states were concerned about the possibility of a growing threat connected to changes in the international force presence in Afghanistan in 2014. While some sought to reduce their countries’ vulnerability to the perceived terrorist threat, the effectiveness of their efforts was in some cases undercut by failure to distinguish clearly between terrorism on one hand and political opposition, or non-traditional religious practices, on the other.
On the occasion of last year's report, Myles Smith wrote on EurasiaNet that "For the most part, the report simply lists what authorities describe as terrorist attacks and as anti-terrorist operations, but uses qualifying terms – 'reportedly'; 'potentially' – that make it clear State is as in the dark on the nature of the events as the rest of us." A year later, there's really nothing to add to that analysis. But it's worth noting that, if the U.S. is spending increasing amounts of money, and making counter-terror assistance an increasingly large part of U.S. activity in the area, it might behoove Washington to be a little clearer about what exactly it is that this money and diplomatic effort are being directed at.
Looking at the individual country listings is instructive. Here is Tajikistan's summary:
Another foreign telecoms firm appears to have been paying millions of dollars to various charities in Uzbekistan, some of them linked to Gulnara Karimova, strongman Islam Karimov’s flamboyant daughter. The revelations come in the wake of reports that Nordic telecoms giant TeliaSonera paid Karimova’s charities to stop harassment from Uzbek officials.
The Tajikistan-Afghanistan border, for much of its 800 miles as open as this. (photo: The Bug Pit)
Russia's Central Asia security bloc held a summit in Kyrgyzstan this week, and the main item on the agenda appeared to be the ostensible danger of increased tension in the region as a result of the U.S./NATO pullout from Afghanistan, which is supposed to start next year. But the outcome of the summit subtly highlighted how the alliance's members -- Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan -- have differing agendas vis-a-vis regional security.
At the summit, the organization reportedly decided to "step up control" on the border between Afghanistan and Tajikistan, which would be the weak link in any security cordon between Afghanistan and the ex-Soviet world. What that means is unclear, though: Russia has been pushing Tajikistan to allow it to again police that border, as it did until 2005. But Tajikistan has been fairly adamant that it doesn't want the Russians to come back. Russia's ambassador to Tajikistan told Reuters a couple of weeks ago that Moscow wants to bring back its border troops to Tajikistan, though such a deployment would "of course" have to be agreed upon by Tajikistan, as well. Tajikistan's government has been notably silent on the issue lately, so it's not clear whether they might be mulling a change of policy and allowing Russian border troops again.
Along with this, Russia is continuing its alarmist rhetoric about the dire consequences of the U.S. pullout in 2014, reports RIA Novosti: