MERCY CORPS TO CLOSE IN UZBEKISTAN; JDA LOSES TAX

UNCLAS TASHKENT 000439 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR SCA/CEN AND EUR/ACE ASTANA ALSO FOR USAID E.O. 12958: N/A TAGS: PGOV PREL EAID UZ SUBJECT: MERCY CORPS TO CLOSE IN UZBEKISTAN; JDA LOSES TAX CASE REF: A. TASHKENT 203 ¶B. 06 TASHKENT 2402 Sensitive but unclassified. Please protect accordingly. -------------- Mercy Corps to Shut Down -------------- ¶1. (SBU) On March 3, Mercy Corps International informed USAID that it intended to close down its operations in Uzbekistan. Mercy Corps made the decision in light of the government's ongoing tax case against the organization (reftels). The tax case, combined with the government's failure to adopt implementing regulations for its microfinance law, has resulted in a virtual stop to Mercy Corps activities. Mercy Corps currently is unable to legally transfer funds into Uzbekistan and had been using money already in country to support its tax case appeal and otherwise keep its programs alive. These funds are quickly drying up, however, forcing Mercy Corps to begin closing down, pending resolution of the tax case. -------------- JDA Will Not Appeal Tax Case Loss -------------- ¶2. (SBU) Joint Development Associates told poloff on March 13 that it had lost its case in Tashkent City Economic Court earlier that day. The organization had been cautiously optimistic that it would prevail, but as with earlier verdicts against Mercy Corps and the Foundation for International Community Assistance (FINCA),the court ruled that Joint Development Associates is liable for the full amount of tax penalties assessed against it. The organization, which has been trying to voluntarily liquidate since August, has decided not to appeal the verdict. It has successfully moved most of its assets out of Uzbekistan, and plans to allow itself to be declared bankrupt for nonpayment of the tax penalties. -------------- Comment: Two Down -------------- ¶3. (SBU) The decisions by Mercy Corps and Joint Development Associates effectively end two of the four tax cases against U.S. microfinance organizations. Post expects that the future holds similar results for the remaining cases as well. As in previous cases, the real losers in these cases will be the ordinary people, particularly in the rural areas of the country, who will no longer have ready access to microfinance loans. PURNELL