Current Political & Economic Situation

Political situation
Uzbekistan, the most populated republic in Central Asia with almost 25
million in-habitants, became independent, after the collapse of the Soviet
Union, on 31 August 1991. Its constitution, adopted in 1992, is rather
liberal in its statement. It introduces a Presidential system with a
Parliament (Oly Majlis/Supreme Council) elected by universal suffrage,
enabling several parties to present candidates.

Mr Islam Karimov, former head of the Soviet Socialist Republic of
Uzbekistan and head of the People’s Democratic Party (the former communist
party), was elected President of the new republic in December 1991 with 86%
of the votes. In 1995 a popular referendum approved the extension of
President Karimov’s mandate until the year 2000. The presidential election
took place on 9 January 2000. President Karimov was re-elected with 91.9%
of the votes cast, against only one opposition candidate. The OSCE and
European Union expressed a negative opinion on the way in which this
election took place. On 27 January 2002 a nationwide referendum agreed with
the extension of the president’s constitutional term in office from five to
seven years.

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The Parliament elected in March 1990 was maintained in function until the
general election of 25 December 1994 which was attended by international
observers. At the time of the latter the candidates of the presidential
majority obtained 80% of the votes. The following general election
proceeded on 5 December 1999 and gave results favorable to the ruling
regime. The OSCE decided not to send an observation mission as the basic
criteria for a democratic election were not met. On 27 January 2002 the
same referendum (see above) authorized the election of a bicameral
parliament for the second convocation of the parliament in December 2004.

The general elections are prepared by an Electoral Commission met by EU
Ambassadors in November 2003.

Despite having taken some transitional democratic measures (opposition
parties were granted legal status, an ombudsman was appointed, etc.), and
even though President Karimov had shown an early interest in Western (and
in particular European) institutional systems, it seems that over the past
five years (since the bombing on 6 February 1999 in Tashkent) the
democratic process in Uzbekistan has taken a step back to practices
inherited from Soviet times. Freedom of expression is today severely
restricted in Uzbekistan, with essentially no independent press. All but
two newspapers are government-owned and require approval from the Committee
for the Control of State Secrets for all published news articles. Moreover
the right to organize political demonstrations is constrained.

Even if Uzbekistan has moved ahead since 11.09.01 with NGO registration (on
4 March 2002 the first formal NGO registration by the Ministry of Justice
took place for the Independent Human Rights Organization) or trial of
policemen involved in the killing of prisoners, basic human rights are not
applied in Uzbekistan. Reports on alarming incidents in the prisons of the
country (torture of detainees, death in custody) and on the increasing
number of detentions of pious Muslims and their families who practice their
religion outside state control, caused the EU to express deep concerns
about the deteriorating situation of human rights in Uzbekistan. In the
Conclusions of the second meeting of the EU-Uzbekistan Co-operation Council
which took place on 23 January 2001 in Brussels the Uzbek side agreed to
permit representatives of the International Committee of the Red Cross
(ICRC) to inspect places of detention and to concede authorization to
foreign representatives, to observe trials of individuals accused of acts
against the state and the constitutional order. The Red Cross visits
prisons on a regular basis since then and has reported that the conditions
were correct but the implementation of this agreement is difficult. The EU
has raised this point during the 4th Cooperation Council on 27 January
2003.

The rise of radical Islam and drug trafficking, especially in the Ferghana
valley, are two of the major dangers facing Uzbekistan today. Fear of the
Islamic fundamentalist threat (in particular in the Ferghana Valley, the
most densely populated region in Central Asia, with the IMU, the Islamic
Movement of Uzbekistan), regional isolation (border delimitation problems
with its neighbours Tajikistan, Turkmenistan, Kazakhstan and Kyrgyzstan,
borders closed by the Uzbek authorities, borders sometimes mined as in the
Ferghana valley) and the emergence of organised terrorism (on 6 February
1999, 6 bombs exploded in Tashkent, killing 16 and injuring 184; other
bloody events occurred throughout summer 2000 have all led to strengthened
repression measures against opposition and enhanced security controls which
further isolated the country. However it seems that IMU capacity to conduct
terrorist activities is reduced. Most of its Afghan support has disappeared
with the fall of the Taleban and the death of its leader (Namangani) in
fights with American troops in early 2002. However the transformation of
IMU into a wider movement IMT (Islamic Movement of Turkestan) which
includes Chinese Uighurs and the absence of peace settlement in Afghanistan
are worrying for the Uzbek leadership.


Foreign Policy
Uzbekistan’s foreign policy is shaped by recent developments in the region,
in particular in two of its neighbouring countries that have experienced
civil war (Tajikistan and Afghanistan), as well as by relations with
Russia. Uzbekistan regards itself as the most important country in Central
Asia and developed during the Yeltsin era a policy independent of Russia.

To this end, President Karimov has tried to bring Uzbekistan closer to
Western countries in general, and to European countries in particular. This
policy seemed less accentuated during Putin’s early Presidential period,
due largely to the fear of Islamic fundamentalism. For Uzbekistan, a
“strong” Russia as advocated by Putin could mean a solid partner in the
fight against Islamic fundamentalism and separatism.

The 11 September events have given an opportunity for President Karimov to
strengthen Uzbek ties with USA. Following 11th September 2001 events
Uzbekistan has adopted a clear policy of support to the coalition led by
the US. American troops are based on its territory officially to
participate in humanitarian missions and search and rescue operations.

Uzbekistan tries to strengthen also its cooperation with Europe and takes
arguments from his strong support to anti-terrorist activities. The 3rd
European-Uzbek-Cooperation Council in January 2002 agreed to enlarge
dialogue to Justice and Home Affairs issues. A new Sub-committee was
created. It held its first two sessions in July 2002 and July 2003 and can
be considered on both sides as a fruitful exchange of views.

Turkey also plays a considerable role in the formulation of Uzbek foreign
policy. In particular, Tashkent counts on Istanbul to ‘draw’ it closer to
Europe, as well as to provide assistance in the fight against terrorism,
drug trafficking and organised crime.

Relations with other countries of the region are marked by reciprocal
pressures. The dispute over scarce water resources may become in the future
one of the important issues and obstacles in bi-lateral relations between
Central Asian “up-stream-countries” like Kyrgyzstan and Tajikistan and
“down-stream-countries” like Kazakhstan and Uzbekistan. Uzbekistan did not
react with much enthusiasm to the initiative (in spring 2000) of the former
Foreign Minister of the United Kingdom, Robin Cook, seeking to outline a
strategic approach to the problem of water in Central Asia, under the
auspices of the OSCE.

Rivalry with Kazakhstan (the other candidate for leadership of the region)
has been an obstacle to regional cooperation, particularly since 2000.

Moreover, Uzbekistan has cut many times gas supplies to Kyrgyzstan and the
south of Kazakhstan, which in return refused respectively to provide water
for irrigation or to ensure the transit of Uzbekistan goods through their
territory. An agreement has been reached in September 2001 with Kyrgyzstan
but this agreement as the previous ones failed rapidly. Taken as an
internal security measure, Uzbekistan has mined its border with Kyrgyzstan
and Tajikistan in the Ferghana Valley. Many casualties including death of
people have occurred. This mining has further isolated Uzbekistan from the
other countries.


Economic situation
Uzbekistan is rich in natural resources such as coal, copper, gold, natural
gas, oil, silver, and uranium, and with a well-educated population and
qualified labour force it enjoys significant economic potential.

Immediately following independence in 1991, Uzbekistan experienced economic
difficulties similar to those that affected most CIS, including loss of
markets and subsidies from the Soviet Union; major disruptions in inter-
republican trade and payments; hyperinflation; and declining output.

Against this background, the government decided deliberately to follow a
gradual, so-called step-by-step approach to macroeconomic and market-
oriented structural reforms.

This gradual transition strategy, the policy of attaining early self-
sufficiency in energy and food grains, and the largely successful efforts
to diversify key exports (cotton and gold) to international markets helped
Uzbekistan avoid the dramatic output collapse and drastic fall in living
standards recorded in many other CIS countries during the early 1990s.

Notwithstanding these achievements, Uzbekistan’s gradualist reform strategy
has involved postponing significant macroeconomic and structural reforms.

The Asian and Russian financial crises, a bad cotton harvest in 1998, and
falling world commodity prices contributed to the substantial deterioration
of the economic performance of Uzbekistan in 1999. Uzbekistan has responded
to the negative external conditions by tightening export and currency
controls within its already largely closed economy. Because of this
situation, and due to bureaucratic difficulties and the absence of a modern
banking system, foreign direct investment in Uzbekistan has fallen sharply.

International financial institutions criticised the Uzbek government for
having made limited progress in some areas, including privatization and the
financial sector. Having repeatedly shunned the IMF, the government has no
access to international financing. The IMF permanent representative left
Tashkent in April 2001, expressing deep concerns of the IFI towards absence
of economic reform in Uzbekistan. Following IMF missions, Uzbekistan signed
on 15 October 2003 Article VIII of the IMF statute (i.e. allowing full
external convertibility of the Sum). This long awaited step forward was
welcome by the international community, including the EU.

Structure of the economy: Uzbekistan’s relative economic success was mainly
due to its favourable economic structure. The country remained a primary
commodity exporter (cotton, gas, oil, gold) with a low value-added
manufacturing sector. Despite the difficult terrain (60 % is desert,
steppe, or semi-arid land and only 10 % is cultivated), agriculture
accounts for about 25% of GDP and employs about 40 % of the labour force.

However the dependency on exports of primary goods makes the country
extremely vulnerable to shifts in world commodity prices.

Trade: Primary commodities, together with cotton fiber, account for about
75 % of Uzbekistan’s merchandise exports, with cotton alone accounting for
40 %. Uzbekistan is the world’s second largest cotton exporter having
supplied in 1999/2000 6% of the world’s cotton production. In recent years,
Uzbekistan was increasingly faced with strong competition on the world
cotton markets from the US and China. The country’s economic crisis in 1998-
1999 was exacerbated by the impact of a severe drought on the cotton and
rice crops output in 2000, prompting the Uzbek authorities to call for
international aid.

Growth: According to official data, real GDP grew by 5.2 % in 1997, 4.4 %
in 1998, 4.4 % in 1999 and 4 % in 2000. However, official statistics are
unreliable since they inflate growth figures by understating the true rate
of inflation and through biased surveying. Accordingly alternative
estimates of GDP growth are much lower. However, even the lower estimates
confirm that Uzbekistan has now recorded five straight years of positive
per capita GDP growth. Uzbekistan’s 1999 GNP per capita is estimated at US
$ 720, placing it among lower-middle-income economies.

On the other hand, recent internal and external trends imply that
macroeconomic stability is at risk. The sharp decline in exports since mid-
1998, the drop of world market prices of cotton and gold, the
administratively-imposed import-substituting industrialisation, the rapid
accumulation of (mainly short-term) external debt, and declining
international reserves together with other factors led to an economic
crisis in 2000 in which the government has been forced to depreciate the
Som by over half of its value in the second half of 2000. According to the
ministry of finance, Uzbekistan ended 2000 with a foreign debt of US $ 4.15
billion. This represents 48 % of GDP (using the official exchange rate) and
128 % of GDP (at the black market rate).

Inflation: Using official figures, the y-o-y rate of inflation in 2000 was
about 25%. However, the true rate of inflation is likely to be twice as
high.

Environmental problems:
Uzbekistan faces a number of very serious environmental problems, the most
pressing of which is the crisis in the Aral Sea basin situated in the
northwestern part of the country. Poor water management over an extended
period of time in Uzbekistan and neighbouring states, the diversion for
irrigation of huge amounts of water from the two rivers that feed the
region (Amu Darya and Syr Darya), have resulted in the partial drying up of
the sea and its contamination by agricultural chemicals. This is now having
a strong negative impact on economic activity and on the general health of
the population.


EU – Uzbekistan Relations
General framework
For the EU, Uzbekistan is an important partner. The country is the economic
and cultural heart of the region. Its geopolitical situation between
Russia, China and the Islamic world makes it a valuable interlocutor.

However the deteriorating situation of human rights in Uzbekistan since
February 1999 has repeatedly caused the EU to express concerns about the
political developments in the country.

The 1989 Trade and Co-operation Agreement, signed with the former Soviet
Union, served as a basis for the development of bilateral relations with
Uzbekistan before the implementation of the temporary agreement in 1996. On
1 July 1999 the Partnership and Co-operation Agreement (PCA) entered into
force, the meeting of the first Co-operation Council took place 13
September 1999. These events marked a new stage in relations between the EU
and Uzbekistan.

The PCA provides an appropriate framework for the development of political
relations; to support the efforts of the Republic of Uzbekistan to
consolidate its democracy and to develop its economy; to promote trade and
investment; and to foster co-operation in legislative, economic, social,
financial, civil scientific, technological and cultural fields. In order to
take into account the enlargement process, a protocol extending PCA to the
acceding countries was sent to the Uzbek authorities in December 2003.

The textile agreement which was initialled in 1993 and was applicable until
31 December 1999, has been renewed by an exchange of letters and is now
applicable until 31 December 2004. It does not envisage quantitative
restrictions, except for certain products of category 2 (mainly cotton
products). Uzbekistan benefits from the Generalised System of Preferences
since 1 January 1993.


Trade
Uzbekistan is the second trading partner of the EU in the region, after
Kazakhstan. Nevertheless, exchanges between the Member States and the
Uzbekistan have been decreasing since 1997. Uzbekistan’s economic situation
and the consequences of the Russian crisis caused this reduction. In 2000
an increase of the Uzbekistan-EU trade turnover could be observed
Uzbekistan’s exports to the EC are mostly agriculture products and textiles
and clothing. The main import items from the EU are machinery,
transportation material and chemicals. The trade balance has been
favourable to the EU since 1996, totalling around E 104 million in 1999. In
the year 2000 the value of Uzbek imports from the EU equalled almost that
of its exports. Bilateral trade amounted to E 801 million in 2002, with a E
115 million trade deficit for the EC.

European companies provided a great deal of investment until 1996-97. It
seems that since then, this investment flow has slowed down. The way in
which the Uzbek judiciary treated certain European companies operating on
the local market shows that the situation does not yet meet the criteria of
WTO member states.


EU Assistance
The Community’s strategy towards the Central Asian region is set out in the
Commission’s Strategy Paper for Central Asia 2002-2006.

Since 1992, Uzbekistan has benefited from assistance through the TACIS
programme (a total of E118.6 million has been disbursed). The 1998-1999
Tacis Action Programme amounted E29 million and covered different sectors
(rural development, institutional building…). Action Programme (2000-
2001) adopted by the Commission in 2000 amounted to E15 million. It covered
rural development, social consequences of transition and institutional
reforms. The new Strategy for Central Asia for 2002-2006 adopted by the
Commission on 30 October 2002 with the new Tacis Indicative Programme (2002-
2004) focussing on regional activities led to no Country Strategy Paper for
Uzbekistan. E29 million has been earmarked for national activities for
Uzbekistan with focus on regional elements. Based on this Indicative
Programme two Tacis Action Programmes were adopted in December 2002 and in
July 2003. A Relex mission was in Tashkent in September 2003 to start the
preparation of the Tacis Indicative Programme for 2005-2006. A mission led
by EuropeAid will take place in October to prepare the Tacis 2004 Action
Programme which is planned to be adopted by the Commission before 2004
summer break.

The Uzbek have requested EIB to finance an education project and have
expressed the wish to have additional funding from Food Security Programme.

However for the moment apart from Tacis no other EU assistance activities
are foreseen in the future for Uzbekistan.


Future relations
Future relations are closely linked to the implementation of the
Partnership and Co-operation Agreement and to the continuation of domestic
reforms in Uzbekistan. It should be noted that there is a contradiction
between the stated political willingness of the Uzbek authorities to draw
closer to Europe, and an increasingly isolationist domestic and foreign
policies, accompanied by limited progress in the field of democratisation
and economic reform. In the Partnership and Co-operation Agreement explicit
reference is made to the ‘common values’ of the two contracting parties,
and consequently to the obligations of Uzbekistan regarding economic
liberalisation and defence of human rights. As to economic reforms it is
one of the EU’s objectives to encourage Uzbekistan to move ahead with
convertibility of the national currency and to improve the business climate
in the country. The EU will further encourage Uzbekistan to enforce it’s
engagement in regional EU and OSCE co-operation initiatives (still state of
affairs?).


General data
Geography : The Republic of Uzbekistan (Uzbekiston Jumhuriyati) covers a
surface of 447,400 km. The country is a doubly land-locked. Uzbekistan
includes the southern part of the Aral Sea with a 420 km shoreline. The
country has common borders with Kazakhstan, Kyrgyzstan, Tajikistan,
Afghanistan and Turkmenistan. It also has small enclaves inside Kyrgyzstan
and Tajikistan. Uzbekistan is composed of 12 administrative regions as well
as of one autonomous republic (Karakalpakstan). Numerous territories are
irrigated and produce cotton and other agricultural products. The climate
is continental (with cold winters and hot summers).

The capital Tashkent, completely destroyed by the earthquake of 1966, has
been rebuilt. It is the most populated city, with 2.4 million inhabitants.

Other cities are famous and have architectural treasures: Samarcand
(population: 392.000), Boukhara, Khiva. City residents account for 41% of
the total population. In the east, the Ferghana valley (irrigated by the
Syr Darja river, which flows through Kazakhstan before ending in the Aral
Sea) is very populated and has a developed agriculture.

Population : 24,75 million (estimate on July 2000), i.e. a density of 55
inhabitants/km. Ethnic groups: The majority of the population is composed
of Uzbeks (77%), the remainder includes several minorities: Russians (6%),
Tajiks (5,1%), Kazakhs (4,2%), Crimea Tartars (2%), Karakalpaks (2%),
Koreans (1%), Kyrgyzs (1%), others (1,7%).

Religions: Muslim 88% (mostly Sunnis), Russian Orthodox 9%, other 3%
Official language: Uzbek. Other languages: Russian, Tajik.

Political system: Uzbekistan is formally a parliamentary republic;
effectively little power is allocated outside the executive branch;
executive power is concentrated in the presidency.

Constitution: adopted 8 December 1992.

Legislature: Unicameral Supreme Assembly (Oliy Majlis) with 250 seats,
elected by popular vote to serve five-year terms). A nationwide referendum
hold on the 27 January 2002 authorised the election of a bicameral
parliament for the second convocation of the parliament in December 2004.

Executive branch: Head of the state: President, elected by popular vote for
a seven-years-term (The above mentioned referendum agreed with the
extension of the president’s constitutional term in office from five to
seven years).. Head of government: Prime Minister, appointed by the
President.

Judicial branch: Supreme Court, judges are nominated by the president and
confirmed by the Supreme Assembly. With the Soviet Civil law in force
Uzbekistan still lacks an independent judicial system.

Incumbent Government: Since the independence of 31 August 1991, Uzbekistan
has been governed by President Islam Karimov (during the late Soviet period
head of the Communist Party, now chief of the People’s Democratic Party).

He was re-elected on 9 January 2000 with 91,9% of the votes.

The last parliamentary elections were held on 5 December 1999 and gave
results favourable to the government. All parties in the Supreme Assembly
support President Karimov. Prime Minister: Utkir Sultanov (since 21
December 1995), also in charge of co-ordinating the EU’s TACIS assistance
programme. Foreign Minister: Abdulaziz Kamilov.


Bilateral trade EU-Uzbekistan (Million ECU/E)
| | EU imports| EU exports| Turnover| Balance|
|1993*|415|201|616|-? 214 |
|1994*|518|391|909|-? 127 |
|1995|500|409|909|-? 91 |
|1996|519|658|1177|+ 139|
|1997|541|762|1303|+ 221|
|1998|465|590|1055|+ 125|
|1999|392|496|888|+ 104|
|2000|484|484|968|0 |
* 12 Member States (Source: Eurostat-Comext April 2001)

CURRENT POLITICAL AND ECONOMIC SITUATION
Political situation
– Independent from the Soviet Union since 27 October 1991, the power
structure in Turkmenistan remains largely unaltered since Soviet days.

President Saparmurad Niyazov, who has taken the title Turkmenbashi (‘leader
of the Turkmens’) has now been in power for 13 years, first as President of
Turkmen SSR, then of independent Turkmenistan. Nyazov has been asked by
various local groups to be “president for life,” but he has declined,
saying the status would require an amendment to the constitution . There is
no formal opposition since rival political parties are outlawed.

Unofficial, small opposition movements exist mainly underground or in
foreign countries. The whole political situation is dominated by President
Nyazov who has decided to develop Ashgabat in building huge monuments paid
by the Presidential Fund (a US$1.3 billion managed directly by himself). In
October 2000, President Niyazov reiterated that his country is not yet
mature enough to make the transition to a multiparty democracy, and denied
the existence of political prisoners in Turkmenistan. However, various
human rights organisations have documented the sentencing of numerous
persons for criticising Niyazov’s policies. Religious tolerance is also non-
existent in Turkmenistan. After a period of relative “inactivity” during
the summer of 2000, Turkmen police and security officers have again begun
raiding Protestant churches and arresting baptists.

– On 18 February 2001 Niyazov, whose presidential term was extended for an
indefinite period in December 1999, told the annual session of the Turkmen
legislature that he will leave office no later than 2010, when he will turn
70. He said open elections should then be held in which several younger
candidates would contest the presidency, but that only persons who have
held public office for 5-10 years and whose candidacy is approved by
parliament will be eligible. In addition, candidates must have lived in
Turkmenistan for 10 years prior to the presidential ballot, a restriction
that rules out former Foreign Minister Avdy Kuliev, who currently lives
abroad. The parliament duly approved a law on holding presidential
elections in 2010. Niyazov had told foreign ambassadors on 16 February that
legislation on the election of regional administrators and the president
will be passed in 2008.

– Turkmenistan has declared itself to be a neutral country and this has
been recognised by the UN. It has excellent relations with Iran and Turkey.

It tries to play a role on the regional political scene. In February 1999
negotiations between the Talibans and Commander Massoud and other Afghan
Factions where opened in Ahgabat. Despite the President’s refusal to join
the CIS Customs Union, Turkmenistan retains a close bilateral relationship
with Russia. The country transferred officially from the Cyrillic to the
Roman script in 1995.

– Turkmenistan’s natural gas reserves are among the largest in the world
and it also has important proven and recoverable oil reserves. The gas
sector accounts for 50% of GDP. The country is also among the top ten
cotton producers. Cotton is the principal export to the West, but its
cultivation relies highly on irrigation and recently scarce arable land has
been increasingly turned over to cereals in a bid to achieve greater self-
sufficiency in basic food crops. But the 2000 drought could lead to certain
difficulties in the country.

– Output has declined for several consecutive years and the economy
continues to be dominated by the State Sector. Considerable arrears in
payments by NIS (Ukraine, Georgia…) for gas have accumulated. It was only
in December 1995 that the government adopted a comprehensive economic
reform programme. Most notably, the exchange rate was unified, allocation
of credit by decree was discontinued, interest rates freed and substantial
measure aiming at price liberalisation introduced. The government has
stated that its principal objective is to stabilise the currency and reduce
inflation to manageable levels. There is no IMF programme presently for the
country.

Turkmen foreign policy
Its foreign policy is closely linked with energy issues. Access to external
markets is the main objective of Turkmenistan.

– Turkmenistan’s relations with surrounding states have foundered. The
steadfast refusal to join regional alliances has isolated Turkmenistan, and
this situation continues into 2001. The cultivation of a special
relationship with Russia has run into problems because of fundamental
inequalities of economic power. Turkmenistan now finds that Russia’s gas
firm, Gazprom, is preventing it from exporting gas to Europe and is
restricting its ability to sell gas even to Ukraine. Despite an agreement
reached with Russia in December 1998 and an increase in energy prices
during the present period Turkmenistan is still facing problems to export
its energy. The debt issue is still a problem for Turkmenistan which cannot
get payments back from energy sold to Russia, Ukraine and other CIS
countries.

– Turkmenistan tries to develop good relations both with Iran (in order to
develop an access to open seas through this country) and with USA which is
providing assistance to develop the trans-Caspian pipeline linking
Turkmenistan with the Mediterranean Sea. However the human rights issue
(criticism from US States Department) and the absence of real economic
activity has led to President Niyazov to put an end to the contract agreed
with certain American firms for the Trans-Caspian pipeline.

– In October 2000 Turkish President Sezer visited Ashgabat and held talks
with Niyazov, which focused on trade and economic issues, above all the
implementation of the 1999 agreement whereby Turkey will buy 16 billion
cubic metres of Turkmen gas annually beginning in 2002. That agreement is
contingent on construction of the Trans-Caspian gas pipeline. Niyazov was
quoted as saying that a new energy agreement with Turkey will be signed
during a summit of Turcophone states to be held in April 2001.

– The long-planned summit of Caspian littoral states on the legal status of
the Caspian Sea should take place in Turkmenistan in 2001. A statement
published in advance of that meeting in the official Turkmen press repeats
that Ashgabat believes that the division of both the seabed, surface and
waters into equal national sectors is “the only acceptable approach” to
defining the status of the Caspian. Russia, Azerbaijan and Kazakhstan,
however, advocate dividing only the seabed and leaving the surface and
waters in common use, while Azerbaijan opposes any modification of the
existing median line dividing the Azerbaijan and Turkmen sectors. The
Turkmen statement also said that the summit should address “issues of
regional security,” and declare the entire Caspian a demilitarized zone.

Economic situation
Turkmenistan’s economy is based on the production of raw materials,
principally oil, gas and cotton. It depends on oil and gas for 80% of its
revenues.

– In spite of enormous oil, gas and other mineral resources, the country
has so far not been able to halt in 1998 a most dramatic recession.

Economic data are totally unreliable. The government has claimed that
growth was positive in 1998 but, although the scale of the recession of
1997 (the economy shrunk by about 25% in just one year!) has not been
repeated, growth was probably close to zero. The economy which was is in a
state of near-collapse after almost two years without revenue from gas
exports 1997 and 1998) has recovered in 1999. In 1997 and 1998 there was a
sharp fall in output, inter- enterprise and wage arrears are rising, and
the national currency (the manat), has undergone a steep devaluation. These
factors have combined to lower the standard of living of a population that
has already suffered significant falls in income. According to Government
figures released in January 2001, Turkmenistan’s GDP in 2000 increased by
17.6% year-on-year, and is set to grow by a further 16% in 2001, while
consumer goods production is expected to increase by 18% in 2001. Chronic
structural problems remain, although banks have been consolidated in an
attempt to improve the fiscal sector. In October 2000 President Niyazov
ruled out privatisation of the oil and gas sectors within the next 10-15
years. These would, he said, remain a key component of the country’s
economy and contribute funds to the social sector.

– The economy is in the midst of a severe liquidity crisis. Reserve levels
and export earnings have fallen, whereas foreign liabilities have risen
sharply. Turkmenistan has been forced to restrict even the limited currency
convertibility it previously allowed (there is a discrepancy of one to
three between the official exchange rate and the black market one). The
authorities have said that the tough foreign exchange restrictions would
end when higher cotton export receipts arrive in the first quarter of 1999.

This has not been the case, despite a good harvest in 1999 (for both cotton
and grain). Turkmenistan was kept afloat through massive foreign borrowing
(mainly from Islamic countries). Foreign debt rose from zero in 1992 to
about 80% of GDP in 1998. Foreign direct investment remains low ($108mn in
1997, $129mn in 1996).

– Turkmenistan is the only former Communist bloc state which has not yet
concluded an IMF-backed stabilisation programme. Such a programme would
require monetary tightening and would thus restrain inflation. However, the
implementation would be likely to run into trouble because of the
authorities fundamental hostility to the reforms required by the IMF, which
would include slashing consumer subsidies and moving towards a convertible
currency.

Turkmenistan is highly dependent on trade with the NIS which was quickly
drying up since the Russian crisis in August 1998. Besides, energy debts of
other FSU countries to Turkmenistan are rapidly rising. Nonetheless, in
February 2001 the Turkmen government and Russia’s ITERA energy corporation
signed an agreement whereby Turkmenistan will sell Russia 10 billion cubic
meters of gas in 2001 – the same amount as in 2000, but at a higher price
($40 per thousand cubic meters compared with $36-38 in 2000, half of which
will be paid in hard currency and half in commodities.) Turkmenistan is
also expected to conclude a long-term agreement on the sale of natural gas
to Ukraine in the very near future. The main concern, however, are domestic
economic developments in Russia which affect Turkmenistan’s long-term
objective to boost hard currency earnings by exporting gas to western
Europe and south-east Asia. The lack of structural reform in Russia implies
that Gazprom will retain its monopoly position and its ability to exact
high pipeline transit fees for Turkmen gas exports to Ukraine and other
former Soviet markets.


EU – TURKMEN RELATIONS
1. 1989 trade and cooperation Agreement with former USSR.

Three Joint Committees UE-Turkmenistan under the old 1989 trade and co-
operation agreement already took place in 1996, May 1997 and September
1998. The last joined Committee took place in Ashagat on 20 November 1999.

2. Partnership and Co-operation Agreement (PCA)
A PCA has been signed in 1998 with Turkmenistan. It is under ratification
by the Member States Parliaments and the European Parliament. An Interim
Agreement has already been agreed and has be signed on 10 November 1999
during the visit of Deputy Prime Minister Orazov to Brussels. It is not yet
operational.

3. Textile agreement between the EU and Turkmenistan
The Turkmen export are not subject to restrictions with the EC.

4. Trade
Trade with Turkmenistan is not stable due to the importance of energy
product. The principal reasons of the decrease are shortage of hard
currency due to the failure of Turkmenistan’s main customers to pay for
natural gas, and poor cotton harvests (which have also affected other
Central Asian countries).

Trade with Turkmenistan accounts for about 12% of overall trade between EU
and the five Central Asia countries (trade with Central Asia accounts for
about 6% of overall trade with the CIS-12).

5. E.C. loan
The repayment of the ECU 44,9 million credit facility awarded in 1992 by
the EC to Turkmenistan for the purchase of food and medicines has been
completed at the end of last year. The fourth and last tranche of the
phased repayment has been paid on 15.12.96.

6. Food aid
A small EU food aid operation (3 MECU) took place in 1997.

7. TACIS
Since 1991, E41 Million have been allocated to Tacis national programmes in
Turkmenistan. These have been concentrated above all in the food sector, in
enterprise restructuring, and in human resources. A new Action programme
has been approved by the Commission in September 1999. The implementation
of Tacis projects is facing problems due to difficulties by the Turkmen
partners.

8. Energy
There is increasing interest in Turkmenistan among investors in the energy
sector, both in the construction of pipelines – the proposed pipeline
through Afghanistan to Karachi is to be built by a US/Saudi Arabian joint
venture – and in the exploration and extraction sectors. It is clear that
Turkmenistan will require major investments in the coming years if it is to
maintain its production capacity. Reserves are being used up much faster
than they are being replaced. Important opportunities for European
companies are therefore in the process of emerging.


GENERAL DATA
1. Official name :
Turkmenistan
2. Geography :
Turkmenistan is a largely desert country covering an area of 488 000 km2.

It is situated between the Caspian Sea to the West, Uzbekistan to the East
and North, and Iran and Afghanistan to the South. It has 3,736 km of land
boundaries including borders with Afghanistan (744 km), Iran (992 km),
Kazakhstan (379 km) and Uzbekistan (1,621 km). Turkmenistan borders the
Caspian Sea (1,768 km). The climate is subtropical desert and the terrain
is flat-to-rolling sandy desert with dunes rising to mountains in the
south; low mountains along border with Iran and borders Caspian Sea in
west. The elevation extremes are the lowest point in Sarygamysh Koli 110 m
below sea level and the highest point in Ayrybaba 3,139 m. The main city
Ashgabat is the capital.

3. Population :
The population was estimated in July 1998 to 4,297,629 inhabitants.

. Population growth rate is 1.6% (1998 est.) with a birth rate of 26.24
births/1,000 population (1998 est.) and a death rate: 8.7 deaths/1,000
population (1998 est.) and the net migration rate: -1.58
migrant(s)/1,000 population (1998 est.).

. Infant mortality rate: 72.89 deaths/1,000 live births (1998 est.)
. Life expectancy at birth:
. total population: 61.3 years (1998 est.)
. male: 57.68 years
. female: 65.11 years Total fertility rate: 3.26 children born/woman
(1998 est.)
. Ethnic groups: Turkmen 77%, Uzbek 9.2%, Russian 6.7%, Kazakh 2%, other
5.1% (1995)
. Religions: Muslim 89%, Eastern Orthodox 9%, unknown 2%
4. Languages:
72% of the population speak Turkmen, 12% Russian, 9% Uzbek and 7% other
languages. Turkmen and Russian are the official languages.

5. Government
Saparmurat Niyazov is President of Turkmenistan since 27 October 1990, when
the first direct presidential election occurred. The President is both the
Head of State and Head of Government (Chairman of the Cabinet). President
Niyazov was elected president without opposition. He gained 99.5% of vote.

On 15 January 1994 he improved his performance by gaining 99.9% of the
total vote, held by national referendum. This referendum decided that he
would remain president until 2002. Then Mr Niyazov was appointed ‘President
for Life’ in December 1999. But a new law proposed that next general
elections should take place in 2010.

There are also different Deputy Chairmen of the Cabinet of Ministers Yolly
Gurbanmuradov (dealing with energy issues), Hudaayguly Halykov (who is also
dealing with Transport issues), K.Rozyev (dealing with agriculture issues)
and Orazmurad Begmyradov (the former head of the chief tax Inspectorate has
been appointed in September 2000 as Deputy premier with responsibility for
the Finance and Economy Ministry and the customs and tax services). The
Tacis National Coordinator is M. Kandimov. The Council of Ministers is
appointed by the President. The Minister for foreign affairs Batyr Berdiyev
has replaced in July 2000 Boris Shikhmuradov who was also Deputy Chairman
of the Cabinet of Ministers. M. Shikhmuradov has been appointed special
envoy of President Niyazov for Afghanistan and then Ambassador.

6. Parliament
Under the 1992 constitution, there are two parliamentary bodies, an
Assembly or Majlis (50 seats; members are elected by popular vote to serve
five-year terms) and a People’s Council or Halk Maslahaty (more than 100
seats, including the 50 members of the Majlis, directly elected members and
additional executive and judicial officials. The People’s Council meets
infrequently. The last election for the Assembly took place on 11 December
1994. The Democratic Party (former communist party) won all seats and all
50 members were pre-approved by President Niyazov. In December 1999 general
elections took place but all the candidates were approved by the President
himself. Hence the OSCE did not observe these elections.

7. External trade (MEURO) with EU
| |1993 |1994 |1995 |
|National |Regional1 |National |Regional |National |Regional | |Action
Programme 2000 |- |- | | | | | |Action Programme 2001 |10.0 |- | | |
| | |Action Programme 2002 |8.3 |11.0 | | | | | |Action Programme 2003
|7.5 |15.0 | | | | | |Action Programme 2004 |6.2 |14.0 | | | | |
|Total |33.0 |30.0 | | | | | |1 Benefiting the 5 countries of Central
Asia
From the budgetary year 2002 onwards, the Tacis assistance for Kyrgyzstan
is based on the Strategy Paper 2002-2006 and the Indicative Programme 2002-
2004 for Central Asia, which are based on the following “three-track”
approach; 1) regional programme, 2) regionally identified priorities
implemented at national level and 3) poverty alleviation.

The Kyrgyz Batken Oblast in the Ferghana Valley will benefit from poverty
alleviation activities under Tacis worth 3 mil;lion euros per year.

Success stories
In Kyrgyzstan, Tacis has reached very positive results in projects
implemented in the sectors of public administration reform and SME
development. In addition, on the basis of the convergence of Tacis’ and the
Food Security Programme’s commitment towards institutional reforms, a high
quality and constructive cooperation was established between both
instruments. In particular, considering the fact that the FSP’s budgetary
support to the Kyrgyz budget represents 3% of the republican budget and
0.5% of GDP, the financial leverage of the FSP (in the form of its
conditionalities) proved to be a valuable instrument for Tacis to press
ahead with the implementation of changes in the area of public
administration and institutional reforms where progress is highly dependent
on the Government’s pace and political commitment towards the reform
process and where resistance from an old guard of civil servants may be a
considerable obstacle. Greater cohesion and complementarity of actions
resulted in an increased impact of EU-provided support, a better visibility
of the EC regarded as a well organised and integrated organisation.

Important regional JHA programmes from which Kyrgzystan benefits are the
Border Management Inititiative for Central Asia (BOMCA) and the Central
Asia Drugs Action Plan (CADAP), which are two major EC contributions to
regional stability and the fight against drug trafficking and hence,
indirectly, terrorism.

In 2003 the Commission also co-financed with 1 MEUR a project to reform
police forces in Kyrgyzstan. Main reasons for EC to support the police
project (through the Rapid Reaction Mechanism) were the specific need to
improve the interface between population and police and the general need to
improve the rule of law in Kyrgyzstan.


Some data on the Kyrgyz Republic (2002)
Population: 5,0 million.

Area: 198.500 square km.

GDP growth: 5,3 % in 2001, -0,5% in 2002.

GNI per capita: E 290
Poverty: 64 % of population
See for a fuller set of social and economic indicators the Worldbank
country fact sheet for the Kyrgyz Republic.