Identifier
Created
Classification
Origin
07TASHKENT1333
2007-07-19 10:28:00
CONFIDENTIAL
Embassy Tashkent
Cable title:  

ADB CHIEF ON PROJECTS IN UZBEKISTAN

Tags:  ECON EFIN EAGR PREL PINR ADB UZ 
pdf how-to read a cable
VZCZCXRO7139
RR RUEHDBU
DE RUEHNT #1333/01 2001028
ZNY CCCCC ZZH
R 191028Z JUL 07
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 8168
INFO RUEHAH/AMEMBASSY ASHGABAT 3156
RUEHTA/AMEMBASSY ASTANA 9301
RUEHEK/AMEMBASSY BISHKEK 3768
RUEHDBU/AMEMBASSY DUSHANBE 3630
C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001333 

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/19/2017
TAGS: ECON EFIN EAGR PREL PINR ADB UZ
SUBJECT: ADB CHIEF ON PROJECTS IN UZBEKISTAN


Classified By: CDA Brad Hanson for reasons 1.4 (b) and (d).

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Summary
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C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001333

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/19/2017
TAGS: ECON EFIN EAGR PREL PINR ADB UZ
SUBJECT: ADB CHIEF ON PROJECTS IN UZBEKISTAN


Classified By: CDA Brad Hanson for reasons 1.4 (b) and (d).

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Summary
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1. (C) The Asian Development Bank depends on a combination of
official statistics, a "huge problem" according to the bank's
country director, and independent analysis to assess the
Uzbek economy. The Uzbek mentality is to make things better
than they actually are, but a lack of know how in gathering
data also is a problem. ADB currently is implementing
projects to improve the government's budget implementation
and expenditure tracking capabilities and promote education
reform. It expects to begin an equity lending project soon
involving local banks as a way to gradually promote reform of
the banking sector. End summary.


2. (C) Asian Development Bank (ADB) Country Director Hong Wei
briefed the Charge on the bank's ongoing activities in
Uzbekistan July 13. Hong said that ADB assesses the Uzbek
economy based on a mix of official statistics and independent
analysis in coordination with the World Bank and
International Monetary Fund. He said that the Government of
Uzbekistan's official statistics are a "huge problem,"
particularly inflation data. Hong said that the problem is
both Uzbek mentality in trying to pad statistics to make the
economy look better than it is, and a general lack of know
how in collective valid statistics. He noted that he views
official trade statistics as more reliable than other
official economic indicators, because they can be double
checked at the other end with Uzbekistan's trading partners'
statistics.

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Treasury Project
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3. (C) Hong said that ADB currently is implementing a major
project on effective budget implementation. ADB estimates
that there are approximately 50,000 budgetary organizations
in Uzbekistan, each of which has both a budgetary and an
extrabudgetary account, which covers such obligations as
pensions, veterans' benefits, etc. Funds are allocated to

these accounts each year, but the Ministry of Finance is able
to track expenditures only through a complex and time
consuming reconciliation process. The problem, according to
Hong, is that the budget does not use clear expenditure
classifications, meaning that the Ministry cannot easily tell
who authorized an expenditure or for what purpose. In
addition to concerns about possible fiscal malfeasance, Hong
said that this leads to inefficient budget implementation
where some accounts run out of money while funds sit idle
elsewhere.


4. (C) ADB's project is designed to introduce a single
treasury system with clear account classifications and
enhanced tracking capabilities. Already, the single treasury
has been piloted in six provinces. Hong expects it will be
implemented nationwide by the end of 2007. In addition, the
commitment and expenditure of funds will be separated into
different functions, and both budget planning and execution
data will be made public starting with the 2009 budget. The
government also has agreed to bring some 20-25 extrabudgetary
funds, which collectively accounted for around 24% of the
2004 budget, onto the books.


5. (C) Once this is accomplished, ADB will begin to implement
a project designed to unify the Government of Uzbekistan's
budget planning. Hong said that currently there are several
different processes, which are not coordinated with one
another. This results in situations, for example, where the
government budgets money to build a new school, but has no
funds to operate the school once it is built. Hong said that
overall budget planning needs to be consolidated in one
place, with responsibility for preparation of individual
budgets decentralized to "front line" ministries.
Additionally, ADB hopes to introduce the concept of
performance-based budgeting, as Hong said that currently
there is no linkage between inputs and results in the
government's budget system.

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Private Sector Financing
--------------


6. (C) Hong said that ADB has traditionally been involved
only in the public sector in Uzbekistan, with agriculture,
infrastructure, and basic education as the bank's primary
"flavor." He said that the Government of Uzbekistan has

TASHKENT 00001333 002 OF 002


asked ADB to become more involved in the private sector; the
bank is willing in principle but has yet to find appropriate
projects. Hong said that he thinks ADB is close to starting
a project with local banks in an equity lending arrangement.
ADB would work with the local banks to improve their
governance structure and strategy, and eventually provide
funds which could be loaned to private enterprises. Hong
said ADB's strategy was to support the smaller banks to the
point that they could compete successfully with the large
state-owned banks as a way to gradually promote reform of the
Uzbek banking sector.

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Education Reform
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7. (C) Hong said that ADB continues to work on education
reform, particularly in rural areas. The bank pioneered
textbook rental schemes in several rural areas as a way to
make education more affordable to the population and to
generate funds for new textbook development and printing.
Hong said Uzbekistan is currently spending nine to 11 percent
of its GDP on education. The funds are not spent
efficiently, however, and allocations are based entirely on
the number of schools in operation instead of the number of
students attending those schools. Hong said that part of the
problem again is that the government does not have accurate
information and that agencies with information will not share
it with one another. ADB is working to improve the
government's capacity to collect and analyze accurate
statistics and to force interagency coordination as early as
possible.

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Comment
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8. (C) Hong has a point when he blames many of the
government's problems on the lack of internal coordination
and sharing of information. Post often notices that Uzbek
government agencies do not seem to talk to one another and
often times appear to be playing off of different sheets of
music. Ultimately, coordination takes place at the top as
decisions of any substance are made in the Presidential
Apparat, if not by President Karimov himself. ADB's attempts
to promote greater coordination and information sharing are
well thought out to help the government move forward.
However, we are a bit skeptical that the secretive and
corrupt Government of Uzbekistan will agree to a truly
transparent and accountable budgetary system.

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Bio Note
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9. (SBU) Hong Wei is a Chinese citizen who studied economics
at Georgetown University. He speaks excellent English.
After returning to China from his studies in the U.S., he
worked for a period as a Chinese government economist
improving the efficiency of Chinese National Railways. His
wife and two daughters chose to remain in Manila because of
schooling. We found Hong a sharp, candid, friendly
interlocutor, who understands the Government of Uzbekistan
well based on his own background in authoritarian China.
HANSON