Uzbekistan occupies a key strategic position in Central Asia and has a strong security relationship with the U.S. but its political system is highly repressive and its economy is barely reformed since Soviet times. Economic decline and political sclerosis threaten internal stability and undermine regional security. The international community has long urged political and economic reform, but with little success. With no significant progress on either front in 2003, it is time for the U.S., the EU and international financial institutions to begin to shift policies: reducing lending and assistance to the central government, while increasing engagement with society and the private sector.

In March 2003, the European Bank for Reconstruction and Development (EBRD) set out benchmarks for political and economic reform that were to be met if lending was to continue. There has been little progress on any of these. U.S. attempts to promote reform within the context of a bilateral "partnership" that has a heavy security component, have also made no significant headway. There are no grounds for the State Department to certify, as required by the U.S. Congress, that Uzbekistan has made "continuing and substantive progress" on political liberalisation, human rights, and economic reforms.

Although independent groups increased their political activity in 2003, the government's attitude to political liberalisation has not changed. Opposition parties have been denied registration, their members face harassment and sometimes arrest, and there is increasing pressure on NGOs and civil society generally. It seems unlikely that independent candidates will be permitted to contest parliamentary elections in December 2004. Freedom of expression remains extremely limited. Despite the removal of formal censorship, newspapers and broadcasting remain almost exclusively under state control, and journalists work under constant pressure from the authorities.

There is also no evidence of overall human rights improvement. Reports suggest that torture is still widespread in places of detention, despite the government's rhetorical commitment to act against it. None of the UN Special Rapporteur on Torture's 22 recommendations has been fully implemented. A government action plan against torture has had little impact on the reality of the criminal justice system. Human rights defenders and ordinary people who speak out against local or central authorities face harassment or arrest from law enforcement agencies.

Uzbekistan continues to suffer serious economic stagnation, unemployment is rising, and living standards are declining. While central Tashkent retains an air of relative prosperity, the reality for many in the capital, and even more so in the provinces, is growing poverty. The economy grew by only 0.3 per cent in 2003, according to the IMF, and GDP per capita has fallen every year since 1998, reaching just U.S.$350 per capita in 2003. With foreign investment miniscule, the regime survives by exporting raw materials, notably gold and cotton. The only way to deal with the economic crisis is through far-reaching structural reforms, but the political elite is reluctant to embrace changes that would undermine its own privileged position.

A long-awaited announcement on convertibility of the currency came in October 2003, but the reality has been disappointing. Although in theory the currency is now convertible, in practice secret and unofficial regulations continue to limit access to foreign exchange. Severe foreign trade restrictions remain, have led to a huge rise in contraband and corruption at borders, and have badly undermined small business development. The business environment is hostile, and state organs continue to interfere with small and medium-sized enterprises.

Other key issues raised by the EBRD have not been addressed. Privatisation of state enterprises has hardy progressed, and banking reforms have stalled, ensuring that informal financial transactions continue to dominate the economy. Capital flight has increased, as Uzbek businessmen increasingly choose to invest abroad.

Economic failure has provoked social discontent. Despite the state repression, factory workers staged rare strikes in 2003 over unpaid wages, and pensioners went out on the streets demanding their payments. Young people, unable to find employment, increasingly seek to leave the country. The most active and well-educated citizens are moving to Russia or the West.

This deteriorating socio-economic environment is provoking a rising tide of popular frustration, which in some regions fosters support for radical Islamist groups. Expectations that increased Western engagement after 11 September 2001 would lead to regime liberalisation have been disappointed. Instead, there is growing disenchantment with the U.S. military presence and increasing identification of Western institutions and governments with the repressive regime.

If the EBRD, the U.S. and other donors like the EU fail to respond to Uzbekistan's refusal to move forward on political and economic reform, their own credibility and that of the wider international community will be seriously undermined in the region. There is only a limited amount outsiders can do to encourage reforms if the domestic political will to implement them is absent. When the government fails to live up to its commitments, however, the international community needs to speak out as well as work all the more with the many people within the country who want things to change for the better.

Osh/Brussels, 11 March 2004