International Bank for Reconstruction and Development    87262
                    International Development Association
                       International Finance Corporation
                  Multilateral Investment Guarantee Agency
                          FOR OFFICIAL USE ONLY
                          CONFIDENTIAL
                                                                       EDS98-85
                                                                    March 9, 1998


Board Meeting of March 10, 1998
Statement by Matthias Meyer
                 Uzbekistan: Country Assistance Strategy
1. In the last CAS for Uzbekistan, presented to the Board three years
ago, “a highly uncertain environment” was emphasized as the major
obstacle to further development. Since that time Uzbekistan has made
progress in changing the environment to be much more certain and
stable. This is reflected, among other things, in the following
achievements:

•   Peaceful relations and cooperation with its neighboring countries,
    as well as a strong presence in major international organizations,
    have been established and maintained.
•   Progress in stabilizing the economy has significantly advanced.
    Economic growth already started to recover in 1996 at the rate of
    1.6 percent and reached 5.2 percent in 1997. Inflation was reduced
    from 64 percent in 1996 to 27 percent last year. These positive
    trends are expected to continue in 1998.
•   Speedy development of the country’s large oil and gas resources has
    allowed Uzbekistan to recently become self-sufficient in energy
    supply. Significant progress has also been achieved in other sectors
    of the economy, as well as attracting foreign investments encouraged
    by the size of the domestic market, central location in the region,
    social stability and internal safety.
•   Uzbekistan has become a major exporter of cotton and gold.
•   An efficient social safety net was established allowing the
    achievement of social stability and reduction of transition costs
    for the poor.
2. The Government is committed to take further steps to stabilize the
economy and to use market-oriented measures to better deal with the
transition challenges.
3. Substantial progress has been made in the area of structural
reforms. A legal and institutional framework has been established for
the development of a securities market. A notable role is played by
auctions for the sale of stocks of privatized enterprises to
privatization investment funds (PIFs). The World Bank has given
substantial support to this program. Furthermore, the authorities are
actively supporting the development of private small and medium
enterprises (SME), which will serve as the strong fundament for a more
progressive transition to market-based economy. The IFC is to be
commended for its assistance in that process by organizing a credit
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line for SME. In the future, the Uzbek Government would like to see a
strong increase of IFC’s activities going beyond the level proposed in
the intermediate scenario.

4. Reforms in agriculture, declared by the Government as a priority
sector for 1998, are currently underway. The newly introduced system
of property rights is intended to facilitate the transformation of
state-owned farms. Farmers are granted tax exemptions for the first
two years. A package of agricultural laws on farms, agricultural
cooperatives and peasants’ enterprises is expected to be approved by
the Parliament in the first half of 1998 together with a land code.
5. The Government considers farm restructuring as a prerequisite
condition for accelerating the transition of the agricultural sector
to a market economy. The Government also recognizes that effective
farm restructuring would require a package of closely coordinated
policy, as well as institutional, legal and investment interventions.
For these reasons the Government designed a mid-term Agricultural
Enterprise Restructuring Program (AERP).
Agreement was reached with the World Bank on the general outline of
this program and on a phased program approach to its implementation.
The AERP is viewed by the Government as an “umbrella” program. Within
the broad objectives and outline of this program, the Government and
the Bank will pursue their dialog to agree on specific and
complementary investment operations. That can be done within a
reasonable timeframe and with major savings on resources spent on
project preparation, appraisal and negotiation. The timing and content
of successive operations will depend on progress in implementation and
on the confirmation of priorities on the basis of actual experience in
the field.
In that spirit the Government would like to see a stronger indication
in the CAS of World Bank commitment to the AERP in its totality and a
specific mention of the second phase in the lending program. This
should be started immediately after good results have been achieved
with respect to implementation of the first phase in one of the pilot
regions and not necessarily in six regions, as indicated in Table 3,
page 15 of the CAS document.
6. The World Bank has taken a flexible approach in developing this
CAS. It will undoubtedly be important to demonstrate the benefits of
more radical reforms in priority areas, such as agriculture and the
corporate sector, through the implementation of pilot projects. We
agree with the concluding remarks included in the CAS and hope that
the situation in Uzbekistan will quickly develop in this direction.
7. Finally, on behalf of my Uzbek authorities, I would like to thank
the Bank for its extensive technical assistance which has contributed
to capacity building and strengthening support for structural reforms
and improved management of macroeconomic policies. I would also like
to take this opportunity to convey their appreciation to the staff of
the Country Unit, project managers and the Resident Representative who
have been doing their best to assist Uzbekistan with the challenges of
transition.