VZCZCXRO7139
RR RUEHDBU
DE RUEHNT #1333/01 2001028
ZNY CCCCC ZZH
R 191028Z JUL 07
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 8168
INFO RUEHAH/AMEMBASSY ASHGABAT 3156
RUEHTA/AMEMBASSY ASTANA 9301
RUEHEK/AMEMBASSY BISHKEK 3768
RUEHDBU/AMEMBASSY DUSHANBE 3630

C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001333 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 07/19/2017 
TAGS: ECON EFIN EAGR PREL PINR ADB UZ
SUBJECT: ADB CHIEF ON PROJECTS IN UZBEKISTAN 
 
 
Classified By: CDA Brad Hanson for reasons 1.4 (b) and (d). 
 
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Summary 
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¶1. (C) The Asian Development Bank depends on a combination of 
official statistics, a "huge problem" according to the bank's 
country director, and independent analysis to assess the 
Uzbek economy.  The Uzbek mentality is to make things better 
than they actually are, but a lack of know how in gathering 
data also is a problem.  ADB currently is implementing 
projects to improve the government's budget implementation 
and expenditure tracking capabilities and promote education 
reform.  It expects to begin an equity lending project soon 
involving local banks as a way to gradually promote reform of 
the banking sector.  End summary. 
 
¶2. (C) Asian Development Bank (ADB) Country Director Hong Wei 
briefed the Charge on the bank's ongoing activities in 
Uzbekistan July 13.  Hong said that ADB assesses the Uzbek 
economy based on a mix of official statistics and independent 
analysis in coordination with the World Bank and 
International Monetary Fund.  He said that the Government of 
Uzbekistan's official statistics are a "huge problem," 
particularly inflation data.  Hong said that the problem is 
both Uzbek mentality in trying to pad statistics to make the 
economy look better than it is, and a general lack of know 
how in collective valid statistics.  He noted that he views 
official trade statistics as more reliable than other 
official economic indicators, because they can be double 
checked at the other end with Uzbekistan's trading partners' 
statistics. 
 
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Treasury Project 
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¶3. (C) Hong said that ADB currently is implementing a major 
project on effective budget implementation.  ADB estimates 
that there are approximately 50,000 budgetary organizations 
in Uzbekistan, each of which has both a budgetary and an 
extrabudgetary account, which covers such obligations as 
pensions, veterans' benefits, etc.  Funds are allocated to 
these accounts each year, but the Ministry of Finance is able 
to track expenditures only through a complex and time 
consuming reconciliation process.  The problem, according to 
Hong, is that the budget does not use clear expenditure 
classifications, meaning that the Ministry cannot easily tell 
who authorized an expenditure or for what purpose.  In 
addition to concerns about possible fiscal malfeasance, Hong 
said that this leads to inefficient budget implementation 
where some accounts run out of money while funds sit idle 
elsewhere. 
 
¶4. (C) ADB's project is designed to introduce a single 
treasury system with clear account classifications and 
enhanced tracking capabilities.  Already, the single treasury 
has been piloted in six provinces.  Hong expects it will be 
implemented nationwide by the end of 2007.  In addition, the 
commitment and expenditure of funds will be separated into 
different functions, and both budget planning and execution 
data will be made public starting with the 2009 budget.  The 
government also has agreed to bring some 20-25 extrabudgetary 
funds, which collectively accounted for around 24% of the 
2004 budget, onto the books. 
 
¶5. (C) Once this is accomplished, ADB will begin to implement 
a project designed to unify the Government of Uzbekistan's 
budget planning.  Hong said that currently there are several 
different processes, which are not coordinated with one 
another.  This results in situations, for example, where the 
government budgets money to build a new school, but has no 
funds to operate the school once it is built.  Hong said that 
overall budget planning needs to be consolidated in one 
place, with responsibility for preparation of individual 
budgets decentralized to "front line" ministries. 
Additionally, ADB hopes to introduce the concept of 
performance-based budgeting, as Hong said that currently 
there is no linkage between inputs and results in the 
government's budget system. 
 
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Private Sector Financing 
------------------------- 
 
¶6. (C) Hong said that ADB has traditionally been involved 
only in the public sector in Uzbekistan, with agriculture, 
infrastructure, and basic education as the bank's primary 
"flavor."  He said that the Government of Uzbekistan has 
 
TASHKENT 00001333  002 OF 002 
 
 
asked ADB to become more involved in the private sector; the 
bank is willing in principle but has yet to find appropriate 
projects.  Hong said that he thinks ADB is close to starting 
a project with local banks in an equity lending arrangement. 
ADB would work with the local banks to improve their 
governance structure and strategy, and eventually provide 
funds which could be loaned to private enterprises.  Hong 
said ADB's strategy was to support the smaller banks to the 
point that they could compete successfully with the large 
state-owned banks as a way to gradually promote reform of the 
Uzbek banking sector. 
 
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Education Reform 
----------------- 
 
¶7. (C) Hong said that ADB continues to work on education 
reform, particularly in rural areas.  The bank pioneered 
textbook rental schemes in several rural areas as a way to 
make education more affordable to the population and to 
generate funds for new textbook development and printing. 
Hong said Uzbekistan is currently spending nine to 11 percent 
of its GDP on education.  The funds are not spent 
efficiently, however, and allocations are based entirely on 
the number of schools in operation instead of the number of 
students attending those schools.  Hong said that part of the 
problem again is that the government does not have accurate 
information and that agencies with information will not share 
it with one another.  ADB is working to improve the 
government's capacity to collect and analyze accurate 
statistics and to force interagency coordination as early as 
possible. 
 
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Comment 
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¶8. (C) Hong has a point when he blames many of the 
government's problems on the lack of internal coordination 
and sharing of information.  Post often notices that Uzbek 
government agencies do not seem to talk to one another and 
often times appear to be playing off of different sheets of 
music.  Ultimately, coordination takes place at the top as 
decisions of any substance are made in the Presidential 
Apparat, if not by President Karimov himself.  ADB's attempts 
to promote greater coordination and information sharing are 
well thought out to help the government move forward. 
However, we are a bit skeptical that the secretive and 
corrupt Government of Uzbekistan will agree to a truly 
transparent and accountable budgetary system. 
 
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Bio Note 
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¶9. (SBU) Hong Wei is a Chinese citizen who studied economics 
at Georgetown University.  He speaks excellent English. 
After returning to China from his studies in the U.S., he 
worked for a period as a Chinese government economist 
improving the efficiency of Chinese National Railways.  His 
wife and two daughters chose to remain in Manila because of 
schooling.  We found Hong a sharp, candid, friendly 
interlocutor, who understands the Government of Uzbekistan 
well based on his own background in authoritarian China. 
HANSON