On July 29, the EBRD announced a further tightening of its lending policy for Uzbekistan. Criticising the lack of progress on political liberalization in the past two years, the Bank will not initiate any new projects in the public sector. It will instead focus exclusively on private-sector finance that has no links to the Karimov regime.
The new strategy represents a further vote of no confidence in the Uzbek Government. Since 2004 the Bank has only been involved in public-sector operations which, according to the strategy, "either linked Uzbekistan economically to other countries in the region or clearly benefited ordinary citizens." Two such deals, long mooted by the EBRD, have now been shelved.
Despite noting limited economic improvements in some areas, the EBRD said that the absence of political reform remained the major obstacle to development. The widely reported massacre of civilian protestors in Andijan last May was "a cause of serious concern."
The EBRD's decision comes at a time when Uzebekistan has continued to cement economic ties with China and Russia, particularly in the oil, gas and textile industries. It also comes in the wake of Uzbekistan's demand that the US airbase at Manas be removed.
Craig Murray, former UK Ambassador to Tashkent, called the EBRD decision a "significant step" towards eventually closing down all operations in the country.
"The fundamental question is whether Uzbekistan wants to develop a capitalist system on the western model, and the answer is no, they have no intention of doing that,' he said.
Murray also believes that smaller central Asian states should now be given greater support by the EBRD to ensure that they can withstand any additional economic pressures exerted by their dominant neighbour.'
An EBRD spokesperson commented: "We would like to increase the amount of business we do in central Asia and the Caucasus, and are currently doing so."