EBRD SOFTENS APPROACH TO UZBEKS

C O N F I D E N T I A L TASHKENT 001904

SIPDIS

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 11/02/2017
TAGS: ECON EFIN EBRD EAIDB WB UZ
SUBJECT: EBRD SOFTENS APPROACH TO UZBEKS

Classified By: CLASSIFIED BY ECON OFF B. OLSEN FOR REASONS 1.4 (B, D).


1. (C) Summary: Ambassador met with the European Bank for
Reconstruction and Development's (EBRD) Head of Mission,
Fernand Pillonel, on October 30 to discuss the bank's
situation in Tashkent. Pillonel said EBRD is taking a softer
approach to Uzbekistan and will reconsider its engagement
strategy in early summer. Some sticking points remain in the
relationship, however. End summary.


2. (C) Pillonel said EBRD's 2007 Country Assessment reflects
the EU's strategy of softer, kinder engagement with the GOU.
The bank believes its harsh public criticism of Uzbek
economic reforms and investment climate has been
counterproductive, pushing the Uzbeks away. Plus, the EBRD
has been predicting economic disaster for a few years, but
the tightly-controlled Uzbek macro economy has stayed afloat
(although the benefits have not reached the majority of the
population).


3. (C) The World Bank is seeking to normalize its relations
with Uzbekistan, Pillonel said, and likely will upgrade its
assistance plan from an Interim Strategy to the normal
Country Assistance Strategy. He believes the Uzbeks will use
a normalized relationship with the World Bank to pressure the
EBRD into normalizing as well. In early summer, the EBRD
plans to reanalyze its position towards Uzbekistan, perhaps
weakening the restrictions on new loans to the public sector.
In 2007, EBRD signed 20 million in new loans, all in private
sector for small and medium-sized businesses, mostly in agro
business; in 2006 it signed just six million. Due to lack of
Uzbek reforms in the agriculture sector and the use of child
labor, EBRD is prevented from loaning to government-owned
agro businesses.


4. (C) Because EBRD has not funded new public sector programs
in a few years, the GOU has prevented the bank from meeting
with public sector actors. (Note: This follows the
disastrous 2003 EBRD meeting in which UK's Claire Short
publically criticized Karimov in front of other Central Asian
Leaders. End note.) Bank representatives have not been
given meetings with their main interlocutor, Minister of
Finance Azimov. Pillonel believes restrictions might ease
after the elections, especially regarding microfinance, as
the GOU, in his opinion, associates microfinance with NGOs
and uprisings. One bright side, he said, is the GOU checked
projects less often in 2007 and there were no reports of
harassment, unlike in previous years.


5. (C) Pillonel mentioned problems EBRD is having with a 2001
project to rehabilitate 80 locomotives. He told the
Ambassador the bank is close to canceling the project because
single bidders are not allowed under EBRD rules. Uzbek
technical constraints forced out the U.S. and Japanese
bidders, leaving only a Russian company. If the project is
canceled, Uzbekistan will have lost three million USD in
consultation fees and be charged a one million USD fee by
EBRD. He believes the GOU is making this into a political
issue and EBRD's relationship with the GOU will suffer.
NORLAND