Note of comment on the Address of the President of Uzbekistan to the national Parliamentary Assembly

1. The 2017 Presidential Address to the Parliament of Uzbekistan and its political impact
For the first time since the creation of the new Republic of Uzbekistan, on 22 December 2017 the President of this country , H.E. Mr. Mirziyoyev, issued a Presidential “State of the Country” Address to the Parliament. By this formal and unprecedented initiative he seized the opportunity to highlight the positive socio-economic results achieved by the Government and the country in 2017. He also made explicit references to some constraints and challenges still facing the Country in its drive towards reform, modernization, diversification and more administrative efficiency. He indicated new orientations and concrete priorities for 2018 and he called for a more direct dialogue between the Government and the population. At last, he insisted very much on the need for the national Parliament to undertake new initiatives to improve dialogue with the population , achieve more openness, efficiency and transparency and provide more effective legislative support to the on-going reform process.

The political, far-reaching impact of this gesture should not be underestimated. This annual Address could become an important event for the whole region and it could even be imitated by other leaders of the neighbouring countries in Central Asia.

Under the new leadership of President Mirziyoyev Uzbekistan has undertaken more decisive steps towards ambitious objectives of democratization, openness, trade integration and market-based economic reform. The fact that the new President has decided to address the national Parliament is, in itself, a clear evidence of a new leadership’s determination to engage the Government and other public authorities at central and local/district level in a constructive dialogue with the population of Uzbekistan, its elected representatives and other main components of the Country’s society.

The construction of a new and more inclusive democratic society and more sustainable, open, market- oriented and inclusive growth model and long-term investment strategies (and relative re-allocations of public expenditure) will be successful only if the Government ensures public “ownership” of reforms, systematic cooperation, popular support, long-term public and private engagements and an equal distribution of the benefits stemming from this transformation process.

There is a sense of urgency as regards the implementation of this ambitious transformative policy agenda. Time is running out and concrete results of this adjustment process are now needed and they should be shown by now. There is a widespread awareness that much more needs to be done to cope with new challenges and overcame the resistance of deeply entrenched vested interests of old bureaucracies and oligarchies. Public opinion’s full support is needed, particularly in view of a second round of economic adjustment in the next two-three years which would need a firm steering and a general consensus and which could bring about additional significant economic and social costs.

By directly addressing the elected body of Uzbekistan, the President also expresses his attachment to democratic principles. He projects a profile of an accessible, innovative and reliable Leader “who cares”, who is in a “listening mode” towards the people’s needs and who is committed to render the Government and the administration accountable and liable to the people. At the same time, through this new manifestation of direct democracy the President would increase also his legitimacy, he would become more influent in the domestic scene and he would also raise its political profile among its partner countries in Central Asia and internationally. He could be the originator of a Central Asian “Renaissance” with a positive impact on society, economy, culture, art, national and regional security and international relations .

2. The main messages of the 2017 Presidential Address
In general terms the Address is well balanced and realistic. On-going reforms now need to deliver concrete results and people now need to perceive their positive impact on their living standards and welfare. The Presidency and the administration are responsible for the positive outcome of this systemic transformative process. A risk needs to be avoided that transition lasts too long, that outcomes are not decisive or sustainable and that a “reform fatigue” prevails, further delaying a deepening of the on-going reform. Violent social opposition and unrest may erupt and radical Islamic tendencies may emerge. In his Address the President duly emphasised the positive outcomes of the first year of his Presidency (2017) but , at the same time, he also stressed some “most critical and pressing issues of political, socio-economic and democratic development of the country” which would deserve more attention, corrections or improvements .

The Presidential Address is divided in two parts. In the first part of it – focusing on 2017 accomplishments – the President mentioned that the country has embarked on a new stage of development and systemic transformation. This reform drive will continue and intensify also in 2018, by encompassing various dimensions : economy, finance, governance, the role of the State in the economy, investment strategies, competitiveness, productivity, innovation, capacity building, training/education and administrative efficiency. In this context he brought some examples of positive outcomes mentioning specific events, facts and figures referring to the accomplishments of the Country in the field of societal changes, industrial investments, the economy, finance and legislation.

The year 2017 was defined as a “Year of Dialogue with the people and of Human Interests”. “The Human interest comes first”, he stressed at the last UN General Assembly in New York. In this respect the Government and the Administration are seeking to reconcile public and private interests through an open, transparent and direct civic dialogue thereby the Public Authorities are listening to the grievances and the needs of the people. In this respect the President stressed that the Government and the public bureaucracy need to be “at the service of the people and not vice-versa”. Encouraging people’s direct access to the authorities is a sign of good governance and an evidence of a Government interest in dialogue and innovative ideas coming from the various components of the society, open to criticism and ready to concretely implement democratic principles. According to the President, these “access rights” granted to people , no matter their race, income level and social position, should become the norm by using specific e-portals open to questions, comments, suggestions and constructive criticism.

To increase administrative efficiency and public scrutiny and avoid corruption, public managers are now personally accountable to the people. This is another example of a sound administration focusing on personal responsibility, concrete outcomes, performance assessments and evaluations. On the economic sphere some first steps have been undertaken to implement effective reforms. Also these economic reforms now need to deliver concrete results.

On the other hand the second part of the Address focuses on the political and economic agenda which is expected to be implemented in 2018, the “Year of support to active Entrepreneurship, Innovation and Technologies”. The policy agenda, as a key priority, aims at improving legislation and enhancing the performance and the efficiency of the Government and administration. He also expects that the Members of the Uzbek Parliament become more involved in the reform process by approving new legislation and trying to anticipate new needs of citizens at regional, district and very local level .

The President’s strong appeal for more administrative efficiency and more direct dialogue with the Country’s various realities and people’s organizations reflect one concern and one new priority in the legal, regulatory and economic governance of the country.

First of all, the President is concerned about the risk that the MPs are perceived by the people as either clearly inactive or inefficient, too distant or too bureaucratic, their role being limited to a simple approval of Executive Orders or Presidential decrees. In this Presidential republic the risk is that the President is left alone to act, not duly supported by other executive and legislative bodies. Providing strategic orientation and guidance, managing public affairs and a complex reform process should imply a team spirit, a higher public involvement, risk burden-sharing, collegial decisions and a broad popular consensus. Acting “in isolation” through top-down decision-making processes is no longer a politically acceptable and sustainable option, especially if the Country wants to appear democratic, accountable and inclusive not only formally but also in substance, A democratic President is expected to report to the Constitution, the Parliament and the people. This may improve the Country’s democratic profile and image domestically, in the region and in the rest of the international community, and become a reference for the group of moderate and tolerant Islamic countries undergoing their own domestic reform and transformation/modernization processes.

Furthermore, in view of future difficulties and risks (including a rising double digit inflation forecasted in 2018, mounting doubtful or non-performing loans by banks to loss-making public enterprises and declining capital- labour and agricultural productivity and competitiveness), the President is also concerned about the need to ensure full political support and ownership of the reform process , and to share relative risks. Some unpopular decisions may be required in 2018 and beyond in order to consolidate a smooth, sustainable and accelerated reform and growth process .

To gain consensus and fill a growing gap between administration/bureaucracy (upper class of high- income public officials) and the civil society representatives and members (many of them low- to-medium income citizens) , decision-making should be decentralized as much as possible to increase the efficiency and effectiveness, performance and concrete impact at very local level.

Summing up, long-term sustainability of the reform process, a more decisive and concrete implementation of a new round of reforms, dialogue with the different segments of the national public opinion and society and accountability of public authorities are the key priorities for the Presidency’s political agenda.

3. Need to tackle new issues and better explain them to the public opinion.
The 2017 Address is rather comprehensive, encompassing governance issues, economic and social affairs and the country’s position in regional and international relations and multilateral fora. It is also mainly an Address directed towards a domestic public of elected personalities and audience. However some key issues should deserve more attention and they should be more clearly explained, particularly if policy credibility, public accountability, transparency and policy/reform ownership-related objectives are to be achieved. The Presidential Address makes a reference to the need to speed and deepen the reform process. This is a good signal in itself but the impact of the whole message would improve if more details are provided on the type of reforms needed at this stage, frontloading the monetary and currency reforms taken last September, their timing and sequencing. In addition some efforts should be made to try to quantify the costs of these reforms and the sources of finance from the national budget, possibly taking into account a medium-term financial perspective (3-5 years ).

In addition , while promoting dialogue with the civil society , the Presidential Address would have more impact if it makes a more explicit reference to public policies required to tackle poverty (especially in rural areas where the bulk of low-income population is living) and a growing social inequality .

As regards pro-poor public policies and fighting social exclusion, the Presidency should put more emphasis not only on the income-side of poverty but also on other life quality indicators such as access to water, electricity, health, education etc. (once again by focusing on rural areas where per-capita socio-economic indicators are well below the national average). Emphasis should also be put on the protection of minorities, the rule of law and “Women as entrepreneurs”.

Another area where further improvements are needed is the quality of national statistics to correctly monitor the evolution of macroeconomic indicators and CPI inflation, the country’s economic performance and the evolution of social indicators having an impact on living standards. Commitments in this field were taken on occasion of the IMF Country visits in July and November 2017.

The Presidency also could be more explicit on regional integration strategies and processes it intend to pursue with its strategic partners in Asia, on account of the Country’s ambition to become a “hub for regional integration”. Presenting the positive outcomes of the regional Summit in Samarkand in November 2017 under the UN aegis (with some follow-up in 2018) could be a good occasion for the Presidency to explain, for instance, the active role played (and progress made) by Uzbekistan to enhance regional security, fighting terrorism, checking drugs’ smuggling and organized crime, strengthening border controls and implement international conventions on terrorism finance, money laundering, illegal migration, decent jobs, children’ labour , social and environmental protection , SDGs, climate etc.

In a regional integration perspective cross-border inter-connectivity is expected to play a key role. This should focus on joint water management, joint management of electricity grids, transport systems, pipelines, joint exploitation of natural resources, creation of internet networks etc . Investments in inter-connectivity may be one of the main driving factors in the development and regional integration process in Central Asia. In this respect the Address should shed some light on what would be the sources of such massive investments required to enhance regional integration in Central Asia. China may provide a substantial amount of investments through its “One Belt-One Road” (OBOR) strategic investment programme linking China with Europe through Central Asia. The rest could be provided by banks, including the EIB and the EBRD.

The EU (which should be mentioned by the Presidential Address) may also provide some funds under its budgets and financing facilities for Central Asia, in the framework of the Multiannual Financial Framework (MFF) for 2020-2027. These European grant funds should be directed to finance Technical Assistance, feasibility studies or national or regional master plans. EU grants may also have relevant leverage effects on the mobilization of international bank’s loans and other private investments. Foreign investors may channel further FDI towards this region if markets become more integrated, political stability is ensured, governance and financial transparency improves and exchange rate risks are minimized and the business climate improves in the region.

The 2017 Address makes a reference to the Art VIII commercial convertibility of the national currency (the Som), FOREX liberalization for residents, the unification of the exchange rates and the double devaluation of the Som which took place in September 2017. These reforms need to be completed by strengthening the instruments for indirect monetary management by the Central Bank of Uzbekistan. The CBU should also become an independent body, in charge of reserves’ management, bank supervision, implementation of prudential requirements under Basel II and III and , with the Treasury , it should be involved in the reform of the Country’s financial system and the privatization of banks.

The Presidency should also better explain the impact of these reforms. On the positive side they will allow an easier access to foreign currency by residents (enterprises, individuals ) and, on the other hand , they will increase the external competitiveness of national exports .

However, on a more problematic side, the two massive currency devaluations decided last September would fuel new inflationary pressures (as imports will become more expensive), thereby tight fiscal policies would be required in the next few months to rein in inflation and keep price levels manageable (however, rising interest/refinancing rates to 14 % will penalize investments and will lead to credit rationing for private enterprises and SMEs) .

Moreover, more expensive imports following two consecutive devaluations of the national currency may jeopardize the Government’s objective to import more innovative know- how and high- tech hardware to support industry modernization and productive diversification. The Som devaluation may also trigger other competitive devaluations in the region. New protectionist measures may be adopted by the Uzbekistan’s main trading partners in the Central Asian region. In this respect the Government objective to liberalize international trade and attract more FDI may become difficult to achieve. But a more open trade regime would be necessary to achieve sustained economic growth in the medium-term, create new employment, reduce poverty and channel investment to competitive sectors.

Tight fiscal policies may have a negative impact on private investment, thus creating a major obstacle for job creation by SMEs and the implementation of labour market reforms.

Another issue that needs to be addressed refers to a progressive price liberalization as a major incentive for better public resource and economic factors’ allocation and sector productivity and as a main signal for investment decisions and profitability for enterprises.

More light needs to be shed on Government’s intentions to reduce the public role in the Uzbek economy through privatizations, commercialization of state-owned enterprises, their listing on national or international Stock Exchanges etc. State-owned enterprises and banks need to be privatized and this painful but necessary process could be implemented by a National Privatization Agency as it was the case in Hungary, Poland the Czech Republic and other adjusting countries during the 1990s and in THE early 2000s in Europe and the rest of the world.

More could also be said on concrete initiatives and steps to improve business climate for national and international investors and specific legislation required (beside the creation of pilot Free Economic Zones) to attract FDI in areas outside gas, oil, petrochemicals and mining.

The Presidency should not overlook the reform of the agricultural sector (and the cotton industry more specifically). This should deserve a great attention in any country planning, investment strategy and modernization/diversification process , on account that :

a) a large size of poor people live in rural areas and in the agricultural sector,
b) cotton is a primary commodity for Uzbekistan , one of the largest producers and exporters in the world, and
c) there is still a prevailing centralized role of the State in this sector, thus creating major economic distortions, fund misallocation and acting as a disincentive for small farmers (and their state cooperatives) to increase investments , innovation, crop diversification and productivity. Rural incomes continue to be still very depressed and poverty in rural areas is quite widespread.

The old centralized Soviet production, pricing and marketing model in this sector is still prevailing and the Presidency should clearly define concrete ways and means to reform it as a key priority.

The Presidency should also mention underlying risks which may negatively impact the reform programme by postponing or derailing its implementation, increasing economic and social costs of adjustment and changing sequencing, priorities etc .

To avoid these risks a strong evaluation, impact assessment, risk analysis tools and monitoring instruments and mechanisms will be required to ensure that transition will not last for too long and brings benefits to be shared among all. A strong international technical assistance may be required to advise the Uzbek decision- makers on strategic orientations , priority setting and timing and sequencing for the implementation of next round of reforms. Modern methods of monitoring and evaluation would be needed. It would also be necessary to sharpen policy analysis in selected sectors (water, energy , transport, agro-industry etc ). Civic participation should also be strengthened to ensure full popular ownership of the second phase of the reform process leading to substantial structural changes of the economic and growth model of the Country.

Further reflection would also be needed on State governance issues. As said, the second part of the Address focuses very much on the administrative reform and a more active role of the Parliament in the decision- making and legislative process. The President advocates a more direct dialogue with the citizens as a sign of a more democratic consultation process with the Uzbek society, However, by so doing, there is the risk is that the Parliament (which is a democratically elected body) is definitely sidelined and eventually become irrelevant unless directly and actively involved in this direct dialogue process.

Also attributing to the people to right to initiate legislation would require some further interpretation. In a modern parliamentary democracy the Parliament (and the political Parties composing it) is at the center of law-making processes, political debates between a ruling majority and opposition Parties and law implementation, political control and supervision.

The Parliament is also in charge of the policy formulation and implementation. People intervene in the political debate by actively participating in the life of political Parties or through periodical elections of their representatives. This is the essence of a modern representative democracy. Candidates belonging to Parties (or civic lists) are elected in function of their programmes and electoral manifestos or proposed policies. In addition groups of citizens may start a referendum to push to Government to adopt a new a new legislation or to reject a new law. They may also start a class action against a Public authority. But they are not “legislators” or “initiators” of laws , as the 2017 Address seems to suggest.

If the political model adopted by the Country is a Presidential democracy , rules and power-sharing between the elected President, its PM, the Cabinet and the other Public functions need to be well defined and clear checks- and- balances need to be put in place to ensure effectiveness, avoid conflicts of interests or overlapping, and ensure a correct division of labour. If this does not happen there is a risk of an arbitrary, authoritarian leadership and top- down legislative processes, with a limited role of the Parliament (mainly a “rubber- stamping” institution) .

In this respect a Presidential democracy may lead to a progressive demotivation and disengagement of the rest of the political representation and other organs of the public administration, further inefficiencies, opaque chains of command-and-control of political or legislative action, lack of accountability, release or transfer of ownership from one administration to another and, eventually, to corruption, and mismanagement. In this kind of direct democracy, to be effective, control functions should be implemented by independent public institutions such as the Central Bank, the Court of Auditors, the State Council, an independent statistical Office, and free and independent civil society organizations, trade unions, press and media.

The 2018 Address could launch a collective reflection on these governance issues , quite crucial to define the future, most efficient form of Government for Uzbekistan.

Andrea MOGNI, Senior Associate, European Institute for Asian Studies