LET THEM EAT BREAD! PRICES SURGE ACROSS THE BOARD

C O N F I D E N T I A L TASHKENT 001479 SIPDIS SIPDIS DEPT FOR SCA/CEN E.O. 12958: DECL: 08/14/2017 TAGS: ECON PGOV UZ SUBJECT: LET THEM EAT BREAD! PRICES SURGE ACROSS THE BOARD Classified By: CLASSIFIED BY CDA BRAD HANSON FOR REASONS 1.4 (B, D). ¶1. (C) Summary: August 1 marked an overall surge in prices for nearly every basic consumer good and service, from gasoline to food to public transportation. This surge coincided with a presidential decree that raised the minimum salary. Presidential elections are expected in only four months. Any increase in public support that President Karimov might have received with the decree was eclipsed by the price surge, likely orchestrated by elite-run monopolies. Uzbek resentment over the surge is a common topic of conversation, though only among small groups of friends. End Summary. Gasoline -------------- ¶2. (SBU) On August 1, gasoline prices surged almost overnight an average of 16 percent. The government is the sole regulator of subsidized gas prices and the majority of gas consumed is produced locally at state-run refineries. Officially, the GOU explained that the cost of production increased due to new investments to upgrade fuel quality. With the exception of a small amount of 95 octane fuel, all of Uzbekistan's refineries produce only 80 and 91 octane, the former the most popular. As a result of higher fuel prices, taxi tariffs have increased by over 60 percent, causing the vocal cabbies to complain even more about the government. The price of public transportation services on the subway, trams and buses rose 25 percent. Post estimates approximately 70 percent of urban and nearly 95 percent of rural Uzbeks rely on public transportation. Food and Commodities -------------- ¶3. (C) Post's statistical analysis shows food and commodity prices rising 4 and 80 percent respectively in the first half of 2007. The spike in prices from August 1 is not an extension of this trend. Within the span of a week, the price of beef rose 19 percent, eggs 23 percent, vegetable oil 32 percent, and flour 16 percent. These are staples of the Uzbek diet and popular resentment of the government has emerged. While not expressed openly, discontentment over higher prices is heard widely in Uzbekistan, but only among trusted friends and contacts. In an attempt to counter this, state-run Uzbek media aired a special on Uzbek bread, which depicted President Karimov committed to Uzbek nourishment and bread subsidies. The media also featured Uzbekistan's Mufti calling on citizens to conserve bread and not waste it at lavish celebrations. While bread may be inexpensive, Post still expects overall inflation to exceed 30 percent in 2007. ¶5. (C) Comment: This price surge coincides exactly with the 25 percent rise in the minimum monthly salary from USD 10 to 12.50, which went into effect on August 1. The last minimum wage increase, 44 percent, occurred in October 2006, but was not accompanied by a surge in prices. The current surge appears to be a calculated, greedy reaction by the elite families who hold monopolies in major economic sectors (septel). We expect to see a similar surge in prices for municipal services shortly. ¶6. (C) Comment cont.: With the Presidential election widely anticipated for December 23, the timing of the minimum salary increase was likely intentional. However, any benefits from the salary increase have been cancelled out by the price surge and any electoral benefits to Karimov may have backfired as public discontent rises over the price surge. The economic situation is in one of the poorest states of the past two years. The price surge will likely plateau as the government takes whatever strong-arm measures it may to rein in greedy entrepreneurs. The danger to the regime, though not imminent, is that the anger already fomenting in citizens from unemployment, delayed payment of salaries and insurmountable corruption, may at some point boil over and be expressed openly and widely. HANSON