AT LONG LAST, NGO FUNDS DISPUTE IS RESOLVED

UNCLAS TASHKENT 002180 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR SCA/CEN AND EUR/ACE ASTANA FOR ALMATY/USAID USAID/E&E/EA FOR BOB WALLIN E.O. 12958: N/A TAGS: PREL PGOV EAID UZ SUBJECT: AT LONG LAST, NGO FUNDS DISPUTE IS RESOLVED REF: A. TASHKENT 1070 ¶B. TASHKENT 1151 ¶1. (SBU) Summary: On December 24 Post USAID Country Director signed a Memorandum of Understanding with Deputy Minister of Finance S. Bekenov establishing the legal framework for reprogramming frozen funds from the Foundation for International Community Assistance (FINCA) and the Agricultural Cooperative Development International/Volunteers in Overseas Assistance (ACDI/VOCA) for use in the health sector. The agreement follows months of complex negotiations. The GOU is expected to drop its legal cases against both FINCA and ACDI/VOCA which have been pending in the economic court. A joint liquidation committee will satisfy outstanding liabilities, including some tax obligations, although accruals of penalties and interest will be forgiven. Remaining funds will be directed to development projects in the health sector. USAID and the Ministry of Health will collaborate to identify appropriate projects and implementing partners, and the GOU expressed hope that this memorandum will pave the way for expanded cooperation with USAID. End summary. ¶2. (SBU) Per the GOU's request, USAID Country Director met with Deputy Minister of Finance Bekenov on December 24 to sign a memorandum of understanding which finally resolves the FINCA and ACDI/VOCA cases. After the EUR/ACE Director's visit to Tashkent to stress the seriousness of resolving these seized funds cases with senior GOU officials, the GOU agreed in principle in June 2007 to a solution in which frozen funds would be reprogrammed to other health development projects in Uzbekistan (reftels). However, the final memorandum spelling out the process took several months to negotiate. The GOU was eager to set up this signing event, and the timing immediately after the Presidential elections was coincidental. ¶3. (SBU) The delay in signing the agreement was largely due to legal wrangling and discussions within the GOU, including at the Cabinet of Ministers level. The MFA Legal Department will now inform the Office of the State Prosecutor, which is expected to formally drop its pending case against both FINCA and ACDI/VOCA in the economic court. Following Uzbek law, a joint liquidation committee will be formed, which will identify legitimate creditors and pay outstanding obligations, which include some taxes. However, the GOU has agreed to waive contested accruals of penalties and interests on outstanding taxes. ¶4. (SBU) Once the liquidation committee has completed its task, USAID and the Ministry of Health will work together to identify appropriate projects and implementing partners to which remaining funds will be directed. The entire legal-reprogramming process will take several months to complete, but the stakeholders are satisfied that the issue has finally been resolved. ¶5. (SBU) Comment: This is the first bilateral agreement in the assistance sector signed with Uzbekistan in several years. It is an important step towards normalizing the bilateral relationship. The GOU recognized the seriousness of negotiations on this issue and, now that an agreement has been formally reached, it will be easier for the GOU to expand cooperation with USAID in Uzbekistan. NORLAND