he threat of Islamic fundamentalism has become more real in recent years, NEZAVISIMAYA GAZETA writes and explains why.

First, due to the assistance given to Chechen gunmen by radical international Islamic organizations the anti-terrorist operation in Chechnya may well turn into guerrilla warfare against Federal troops lasting for many years. International Islamic centers are supplying mercenaries who have undergone military training at bases in Afghanistan, modern weapons and money to support the resistance of Chechen gunmen to Russian troops. Islamic extremists and their ideologists know full well that a protracted war in Chechnya will undermine the authority of the new Russian leadership both inside the country and on the international scene. The second Chechen war therefore may result in an agreement just as disgraceful for Russia as the Khasavyurt accords are. If that happens, Islamic extremists will set about extending their influence to Russia's Northern Caucasus and Tatarstan and Bashkiria with the aim of breaking those regions away from Russia. That this is a distinct possibility was amply demonstrated by the invasion of Dagestan by Basayev's and Khattab's gunmen in August 1999.

Second, the threat of an Islamic invasion of Uzbekistan, Tajikistan and Kirghizia from Afghanistan has become more real than ever before. According to Uzbek and Tajik military sources, the Taliban are amassing military hardware close to the border with Uzbekistan and Tajikistan to storm the positions of the Northern Alliance. If they succeed in destroying the Alliance, the Taliban (who are supported by Pakistan, Saudi Arabia and the United States) will become masters of the whole of Afghanistan, which means that Pakistan will be able to get down to creating an Islamic state stretching from China to Iran. This will completely upset the geopolitical balance that was established in the region after the withdrawal of British troops from Pakistan and India in the 50s.

As a religious movement the Taliban was established on the basis of a U.S. plan to weaken India, Iran and Central Asian countries. In giving support to the Taliban the United States was aiming to establish full control over Afghanistan with their help and pressurize Iran and India. However, the Taliban have outplayed their American sponsors: they are harbouring the number one international terrorist Usama bin Laden who has called for a world-wide jihad against the United States and masterminded the bombing of U.S. Embassies in Kenya and Tanzania.

However, the Taliban and the United States may well come to terms again. Following the latest military coup in Pakistan that country has found itself in almost total isolation. Therefore, Islamabad needs U.S.support badly.

The Taliban too need U.S. support: if they succeed in establishing full control over Afghanistan, they will need international recognition, but this is impossible to achieve without active U.S. assistance. For the sake of international recognition they are even ready to sacrifice bin Laden whom they evidently regard as a trump card in their game with the United States.

The U.S. will help the Taliban only if they continue fulfilling its geopolitical order in the region. Given that Washington wants to see a weak Iran, the paper does not rule out a Taliban war against that country. Washington is also very jealous of the desire of the Central Asian republics to seek protection from Russia because in the long run this may undermine U.S. positions in the Caspian region.

Washington intends to use the Taliban as a means of offsetting Russian influence in the Central Asian republics. However, the greater Washington's pressure on the Central Asian republics against the background of a growing threat of Islamic extremism, the closer their rapprochement with Russia which they see as a reliable protector of their interests.

For some reason or other Washington pretends that extremism and drug-trafficking originating from Afghanistan pose no special threat although, according to the British Foreign Secretary, for example, 90% of all drugs coming to Europe originate in Afghanistan. By giving secret support to the Taliban and Pakistan as their main sponsor the U.S. Administration is in effect giving assistance to Islamic extremists.

he presidents of Kazakhstan, Kyrgyzstan, Russia and China have confirmed their participation in the upcoming summit of the Shanghai Five to be held in the Tajik capital on July 5. The Tajik Foreign Ministry said on Wednesday that for the first time "the summit will be attended by Uzbekistan as an observer".

Also for the first time, the foreign ministers of China, Russia, Kazakhstan, Tajikistan and Kyrgyzstan will hold a separate meeting as part of the Shanghai Five summit. They will sign a joint communique. The heads of state will sign the Dushanbe Declaration. Tajikistan, China and Kyrgyzstan will also sign an agreement on the point where their borders meet.

zbek President Karimov issued a decree on increasing pensions, student allowances and social benefits, effective August 1, 2000. Here are excerpts from the decree:

In an effort to strengthen the social protection of the citizens average wage of workers in budget-funded establishments and organizations, all types of pensions, social benefits and allowances for students at higher educational establishments and at vocational technical colleges will increase by an average of 1.5 times.

2. As of 1st August 2000, minimum levels are to bethe territory of the Republic of Uzbekistan: Wages at 2,450 soms per month; old-age pensions at 4,675 soms per month; the absolute minimum wage level within the unified tarrif system at 2,450 soms per month; benefits for people who have been disabled since childhood at 4,675 soms per month; benefits for elderly people and disabled people who have not worked long enough to qualify for a pension at 2,835 soms per month.

3. In line with this Decree all types of rises in and additional payments to wages, pensions, benefits payable for mothers during the first two years of their child's life, and benefits for families with children and other payments will be adjusted in concert with the minimum wage as of 1st August 2000.

zbekistan expects a gross grain crop of 4.89 million tonnes in 2000, of which 1.3 million tonnes has already been harvested, an agriculture and water resources ministry official said on Wednesday. The grain campaign began in June and is running ahead of last year, when 1.02 million tonnes had been harvested by this time. Uzbekistan last year produced 3.71 million tonnes of grain, of which wheat accounted for 3.60 million tonnes. This year, it has sown 1.5 million hectares to grain, 50,000 more than in 1999. The official said most of this year's crop would come from large agricultural enterprises, with about 600,000 tonnes being produced by household farms. About 4.7 million tonnes of the crop would consist of wheat, with barley and rye accounting for the rest. Uzbekistan, Central Asia's most populous country with 25 million people, usually imports grain from neighbouring Kazakhstan and elsewhere. Traders put annual domestic consumption at 4.5 million tonnes.

sian Development Bank is to lend Uzbekistan a total of $156 million this year for three projects, said its permanent representative in Uzbekistan Nagarajah Gnanathurai. He said the bank will consider opening a second small business support credit line(probably $50 million), finance an agricultural project in Akalte district of Syrdarya region ($36 million) and a road reconstruction project for 300km on the Samarkand-Bukhara road ($70 million). February this year the ADB approved a $57 million loan for developing specialized secondary education in Uzbekistan. The ADB has lent Uzbekistan a total of $267 million since 1996 for five projects.

zbek professional boxer Artur Grigorian became a twelve-times WBO champion after beating a Hungarian boxer. Artur sent him to knock-out a minute prior to the last, twelvth, round.

urkmenistan and Uzbekistan have no mutual territorial claims, says a protocol of the Turkmen-Uzbek negotiations that took place in Ashgabat on Friday. The sides formed an intergovernmental commission for the delimitation and demarcation of the state border by instruction of Presidents Saparmurat Niyazov and Islam Karimov. The commission will draft a treaty on the state border to be signed by the presidents. Delegations to the talks were led by Turkmen Vice-Premier Redzhep Saparov and his Uzbek counterpart Rustam Yunusov.

ext of report by Uzbek TV on 23rd June

[Presenter] Large amount of narcotics were destroyed today.

[Correspondent over video of people including armed servicemen with assault rifles throwing alleged drugs into a furnace] At one of the plants of industrial sector 1,800 kg of confiscated narcotic substances were burnt today. This has been the demonstarive way of destroying opium, heroin, marijuana, hashish since 1994. In general, almost 33 tonnes of narcotics have been reduced to smoke and ash since then. Sixty six people were involved in the amount which was destroyed today. Investigations have ended and we can say that these people would spend not a single year in remote places.

Meanwhile reports from the National Security Committee, Ministry of Internal Affairs and the Customs Committee which are jointly fighting the drug mafia say that not a single gramme of heroin or other types of drugs are produced here in Uzbekistan, the amount of poppy growing fields has been significantly reduced, and most of the seized illegal cargo has an Afghan origin.

[A. Babakulov, acting head of a department for fight against contraband under the State Customs Committee, captioned] Over 5,000 tonnes of narcotics were grown in Afghanistan in 1999. They are all mainly located near our borders.

[Correspondent] The country's special services are often conducting joint investigations with the CIA, western intelligence services, and the Russian FSB [Federal Security Service], because drug traffickers are cunning and are using every means for the dirty business, quite often they join corrupt groups. The special services are also changing their methods of work.

[Z. Daniyarov, the head of the main directorate of the National Security Committee, captioned] Previously, we only used to work out, find out channels and detain drug traffickers. Today, we are often using a method of controlled delivery. That is - we monitor the supply route for delivering narcotics from the start to the finish.

[Correspondent] Despite the fact that all drug routes have been determined, they are in the [southern Kyrgyz Region of] Osh direction, Bekabad [District in Tashkent Region] to Tajikistan, [Tajik capital] Dushanbe to [southern Uzbek District of] Saryassiya, and the so called Afghan origin, actual facts show that there is still a tendency of increasing illegal circulation of narcotics.

[Daniyarov] Yes, it is true that the influx into and transit through our territory is increasing. In this connection we have prepared a whole programme which envisages combating illegal circulation and transit of drugs.

[Correspondent] During the recent [Economic Cooperation Organization] Tehran summit President Islam Karimov proposed the setting up of an international centre for monitoring the drugs situation in the region. Drug business, which has taken transnational forms, poses a threat to the whole world, though our region, because of the circumstances that have arisen here, has become one of the countries which needs the most international support.

xcerpts from report by Uzbek TV on 22nd June

[Presenter] President Islam Karimov of Uzbekistan attended a regular summit of the heads of CIS states which took place in the capital of the Russian Federation, Moscow. Our correspondent has more.

[Correspondent] [passage omitted: details about the reception ceremony at Vnukovo airport; agenda of the CIS summit]

Another important issue was also discussed at the summit, on ending the work of the peacekeeping troops of the CIS who have been ensuring peace and stability for the last few years in the Republic of Tajikistan. In his speech President Islam Karimov highly assessed the work of the CIS peacekeeping forces in establishing peace and stability in Tajikistan and stressed that such a result was achieved not with the help of international organizations but with the efforts of the states party to the CIS and that this event should also be an example for others, not only within the framework of the CIS, that this should be assessed by the world in a comprehensive way, the president of our country said. The head of our state also continued these thought in a news conference which was held at the end of the summit.

[Uzbek President Islam Karimov speaking at the news conference in Russian] Above all, this precedent itself, and [Russian President] Vladimir Vladimirovich also said, is a unique precedent - without attracting a so called international peacekeeping force to one of the ongoing conflict situations, I would have said, with the help, and above all, concentration, with the help of attracting forces of the CIS countries alone, with Russia's special role, a civil war was settled. This precedent means a lot. Recently we, together with other presidents of the Central Asian region visited [the Tajik capital] Dushanbe and we saw that Tajikistan was indeed entering a new phase of its development, above all stabilization of the situation, security, restoring its economy and guaranteeing a stable development.

There is still a lot of work to do, there are threats, not only those threats about which [Tajik president] Emomali Sharipovich has mentioned but also other threats, attempts to return to the past again - to the frail opposition. Nevertheless, I repeat again, today Tajikistan has entered a new phase and collective peacekeeping troops have played this, I would have said, exclusive role. The precedent is unique in itself namely because, if there is a will among the CIS countries to coordinate their forces, if there is a good will and political will and if they unite their efforts, it is possible to solve other conflict situations as well which at present exist on the post-Soviet territories. This is the first issue.

The second issue, I would like to ask journalists to pay special attention, in particular, to all the efforts which are being taken in Kosovo, Bosnia and other regions of the world to bring peace but which has not been achieved yet.

At the same time, we have a unique experience on the post-Soviet territory. This is extremely important, and I would particularly like to stress this view. Taking this opportunity I would like to say that Russia's role in this, of course, is great, I would like to overtly express this thought because we must openly acknowledge Russia's presence in the Central Asian region and also Russian interests in the Central Asian region, and not to play any games here. Yes, Russia had its interests, has and will have them in this region. It is important for Russia to have a long term, I would say, strategy, not only in the Central Asian region but also in the southern direction. Unfortunately, I should say, that we do not see the implementation of this programme as yet but we hope that it will happen.

[Correspondent] During Islam Karimov's visit to the Russian Federation he had a one-to-one meeting with President Vladimir Putin and discussed a number of issues connected with cooperation between the two countries. With this the Moscow summit of the heads of CIS states ended.

total of 28 kg of heroin and a Kalashnikov [assault] rifle have been seized from two criminals in Uzbekistan. The two citizens of Uzbekistan have been arrested while trying to sell a Kalashnikov rifle for 300,000 soms (1 US dollar = 250.93 soms) in Surkhandarya Region (the south of Uzbekistan; bordering on Afghanistan), the press service of the Uzbek Foreign Ministry told Interfax on Thursday [22nd June]. The investigators also confiscated 27.97 kg of heroin from them. Both criminals admitted that they were carrying the rifle and the drugs from Tajikistan and were planning to sell them in Uzbekistan.

zbekistan's Deputy Prime Minister Valery Atayev has been appointed as the new president of state energy holding company Uzbekneftegaz, a company official said late on Friday. The official told Reuters that Atayev, who earlier supervised the energy and mining sectors, would continue to hold his post as deputy prime minister.

The previous Uzbekneftegaz head Ibrat Zainutdinov has been appointed the chief engineer of the company. Uzbekistan is currently the second largest gas producer in the former Soviet Union, with last year's output touching 55.6 billion cubic metres. Its oil output in 1999 was 162,000 barrels per day. The Central Asian state recently launched an aggressive bid to lure investments to the energy sector and plans to sell four Uzbekneftegaz subsidiaries next year. Foreign investors have reacted with caution to the privatisation proposal, mainly because of strict exchange rate controls in place in Uzbekistan.

zbekistan has made little progress in integrating itself into the world economy and recent talks with the IMF focused on technical issues rather than financial support, an IMF official said.

The IMF's resident representative in Tashkent, Christoph Rosenberg, told reporters late on Monday that the key issue of capital controls had not been raised during a fund mission to Uzbekistan from June 6 to 16.

"It is very important to know that the government invited us for technical discussions," Rosenberg said. "There was no invitation for the IMF to talk about financial support. So actually there was no discussion about a financial programme."

He said the government had invited the mission to return to the Central Asian state in autumn for further consultations.

His statements dash hopes that Uzbekistan could be planning to liberalise its economy soon. President Islam Karimov said after his re-election in January that he would do away with capital controls and unify exchange rates.

The IMF froze its $180 million loan programme for Uzbekistan in 1996, when a poor cotton harvest prompted Karimov to institute stringent currency exchange restrictions.

The controls scared off foreign investors and led to the growth of a black market for the dollar. The sum currency trades at 700 to the dollar versus its official exchange rate of 255.

Economists say a large international credit will be needed to ease the effects of long-delayed reforms but Rosenberg said the government would have to formulate a concrete macroeconomic plan and improve its transparency. Rosenberg said controls, installed with the aim of improving the balance of payments, had actually had the reverse effect.

"I would argue the balance of payments situation in Uzbekistan since then has considerably worsened," he said. "Uzbekistan, I think in last three or four years, has not made much progress to integrate itself into the world economy."

He said EBRD estimates had put foreign investment inflows into Uzbekistan at a meagre $8 per capita last year, the lowest in the former Soviet Union after war-scarred Tajikistan.

"The system has encouraged capital flight," Rosenberg said. "Every year we recorded $600-$800 million unidentified capital outflows since 1996."

The controls are largely blamed for Uzbekistan's falling living standards and failure to attract investors. Average monthly wages are about $10.

Reduced hard currency inflows have caused the country's foreign reserves to dwindle to $1 billion, compared to $2 billion in 1996. Uzbek external debts have soared to $4.6 billion with around $900 million due this year, Rosenberg added.

he Taleban movement in Afghanistan is getting ready for a battle with the troops commanded by Ahmad Shah Masood, an Afghan diplomat said.

The head of the Afghan diplomatic mission in Tashkent, Mohammad Hashim Saat, told Itar-Tass on Wednesday that up to 1,500 fighters from Pakistan, 1,000 Arab and Chechen mercenaries hired by the world's No.1 terrorist Osama bin Laden, and 3,000 Taleban militants are massing up on the outskirts of Kabul.

He said the Taleban fighters are expected to clash with the Northern alliance troops of General Ahmad Shah Masood in the next two to three days.

ccording to unofficial sources, Government of Uzbekistan may take specific steps towards opening some level of convertibility as early as July 1, 2000. The sources predicting that public announcement may be made (it may not be widely public and it is unclear that it will be published in the press nationwide) by the end of this week, and the new regulations may be effective by the above given date.

Sources also say that Central Bank of Uzbekistan have already tasked the authorised Commercial Banks to be ready (the meaning of "ready" is not clear) and to be prepared for new convertibility procedures. This may only be related to high street currency exchange points of authorised commercial banks.

It is likely that the process will go in several stages, however, number of stages yet uknown. Last month, Rustam Azimov, the Minister of Finance, has confirmed at EBRD's Annual Summit in Latvia that the Government of Uzbekistan is targeting to open the convirtibility by the end of 2000.

news conference devoted to combating AIDS was held to at the UN mission in Uzbekistan on Wednesday, June 28. A deputy chief public health officer of the Republic of Uzbekistan and a senior physician of the republic's AIDS centre, Prof. Muntoz Hakimov, spoke about efforts to curb and prevent this disease in our country.

According to the latest reports, a total 125 cases (of HIV/AIDS) have been registered in Uzbekistan. Some of them are citizens of foreign countries. All of the foreign citizens have been deported to their countries.

During the news conference the republic's media agencies asked questions which were of interest to them. UzRadio Correspondent Erkin Tolaganov has interviewed the senior physician of the republic's AIDS center, Muntoz Hakimov.

Mr. Hakimov made the following statement to UzRadio:

"A total 125 HIV-infected people have been registered in our country, of them 31 people in the Capital city of Tashkent, one in Bukhara Region, one in Dzhizak, one in Kashkadarya, some in Navoi, eight in Namangan, four in Samarkand, some in Syrdarya, 36 in Tashkent Region, four in Fergana and one in Surkhandarya. Nine of them have died of AIDS. Ninety per cent of the patients are drug addicts who inject drugs and 8 per cent have contracted the disease through. These people include engineers, hairdressers, tailors, shop assistants, teachers, agronomists and people were abroad. Out of them 33 people are foreign citizens. They have been deported in line with the law."

he world's biggest automakers on Monday bid for Daewoo Motor, offering the debt-laden South Korean company a global role in the rapidly consolidating industry. Daewoo's Asaka Car Manufacturing Operation is one of the three major units of the Plant outside of South Korea.

``Where Daewoo is strong, we are weak,'' said Meera Kumar, spokeswoman for Ford's bidding team. ``This would be very complementary,'' he adds. This type of comments basically giving a message that operations like in Uzbekistan, Poland and India are actually making DAEWOO Motors an attractive company to buy. It also seems that bidding giant producers are very interested in boosting car manufacturing in emerging market operations like Uzbekistan.

Analysts describe the sale of Daewoo's assets, expected by the end of September, as also vital for top automakers set on boosting their stakes in the Asian market, which offers great potential growth in coming years.

The company has an annual output capacity of two million vehicles and sold more than 945,000 last year, including almost 340,000 in South Korea.

Its strong brand name in Southeast Asia and Eastern Europe, including Central Asia, also makes it attractive, analysts and sources at the bidding companies say.

General Motors, DaimlerChrysler AG, Fiat and South Korea's largest maker, Hyundai Motor, all bid on Monday as expected, but the shape of the bids provided some surprises.

DAIMLERCHRYSLER - HYUNDAI ALLIANCE

DaimlerChrysler and Hyundai tipped their hand late last week, announcing a Monday news conference analysts rightly assumed would include a joint bid for Daewoo, Hyundai's main domestic rival.

They separately announced a strategic alliance of their own, with the U.S.-German company taking a 10 percent stake in Hyundai worth almost $430 million.

A Daimler spokesman in Frankfurt said the U.S-German firm had the right to increase the stake to 15 percent in three years, prompting some Seoul-based analysts to speculate the company might eventually seek a full takeover of Hyundai.

DaimlerChrysler board member Eckhard Cordes, who was in Seoul to present the nonbinding Daewoo offer, told a telephone conference on Monday the bid represents interest in possibly taking that alliance further.

``What we are going to do is we are going to investigate the merits of a potential alliance between us and Daewoo,'' Cordes said. ``If we come to the conclusion it makes sense, we will go ahead. In the case that it does not, we will stop.''

Some analysts said it was unclear why the U.S.-German company would need Daewoo, while suggesting any link between Hyundai and Daewoo may face the problem of overlapping models, facilities and services.

``DaimlerChrysler may not be as interested in Daewoo as Hyundai clearly is,'' said one analyst.''Daimler already has a controlling stake at Mitsubishi Motors while Hyundai hopes to defend its domestic market share.''

GM-FIAT BID A SURPRISE

GM and Ford made it plain they believed they had the strongest offers for Daewoo, with GM's joint bid with Italy's Fiat, with which it announced a comprehensive alliance in March, surprising some analysts.

``Our business plan will give Daewoo the best opportunity for rapid normalisation, while preserving the identity of Daewoo Motor, its product brand and its ability to play its role as a stand-alone competitor,'' said GM Chief Executive Officer G. Richard Wagoner.

``It ensures long-term viability and puts Daewoo into an industry-leading position poised for rapid growth both domestically and internationally,'' Wagoner said in a statement.

For GM, the Daewoo bid represents a potential reunion as the two shared a 15-year relationship that broke off in 1992 over differences in sales and marketing.

The world's largest automaker has spent the last year beefing up its stakes in Asian automakers such as Japan's Fuji Heavy Industries, maker of Subaru cars.

It has a mutual engine supply agreement with Honda Motor Co

and stakes in minivehicle maker Suzuki Motor Co and truckmaker Isuzu Motors Ltd, but the Daewoo tie-up would mark its biggest step into its weakest region, analysts say.

The nonbinding GM-Fiat proposal calls for a new company to be formed with GM as the largest shareholder, Fiat holding up to 20 percent, and the balance likely divided among Daewoo creditors and other constituents of Daewoo.

The new firm would own and operate the South Korean assets of unlisted Daewoo Motor and its sister firm Ssangyong Motor Co , as well as the majority of their international operations.

Daewoo Motor has 11 overseas plants and 25 overseas sales companies, including manufacturing operations in Poland, India and Uzbekistan.

Ford's solo bid also focused on Daewoo's established presence in Asia and Eastern Europe, while stressing the U.S. company, as it has done with marques such as Jaguar, Volvo and most recently Land Rover, would preserve Daewoo's identity.

``Where Daewoo is strong, we are weak,'' said Meera Kumar, spokeswoman for Ford's bidding team. ``This would be very complementary.''

``It's no secret that the markets in North America and Europe are near saturation,'' Kumar said. ``Growth is going to come from Asia, where we don't have much of a presence, and in Eastern Europe.''

Ford Motor earlier said it would foster Daewoo as a key player in its Asia-Pacific operations, assuring workers that jobs would not be reduced under new management.

ONE LIKELY TO GO

Jang Sae-chan, a spokesman for Daewoo's auction office, said at least one of the bids would likely be dropped by Friday as officials pare down the list to one or two favoured for further negotiations.

``Three bidders, including two consortiums, submitted their non-binding proposals,'' Jang said. ``Our assessment team, including representatives of creditors and industry experts, will pick one or two favoured parties by June 30.'' Plans call for a final winner to be chosen by the end of September.

In addition to the assets of Daewoo Motor and Ssangyong Motor, Daewoo Motor Sales and unlisted Daewoo Capital are also on the table.

The auction stems from the breakdown of the Daewoo Group, which until last July was South Korea's second largest conglomerate.

The automaker and 11 other core Daewoo Group firms ran into financial trouble, prompting emergency loans from creditors who assessed Daewoo Motor's liabilities at 17.9 trillion won ($16 billion) against 11.8 trillion won in assets.

sian Development Bank, a major lender to Central Asian countries, has published Asian Development Outlook - 2000. The report evaluates the state of development and prospects for Uzbekistan, among others. According to the bank, stable growth in Uzbekistan will require serious structural reform, as well as measures for shielding the public from the problems associated with such reforms.

THE UZBEK ECONOMY IN 1999

According to Asian Development Bank (ADB), de-spite the macroeconomic difficulties and the effects of the Russian and Asian crises, Uzbekistan achieved growth in GDP of 4.4%, the same as a year earlier. Growth in GDP was provided mainly by agricul-ture and industry. Unlike the 1996-1998 period, the weather conditions were conducive, allowing agriculture to expand production volumes, including of cotton - the most important export. Agricultural output rose 5.9% in 1999, compared to 4% in 1998. However, low prices for cotton and gold (the other major export) re-sulted in a slight fall in export earnings.

Industrial output rose by 6.1%, construction by 3.9%. Growth in the service sector also had an effect on real GDP growth, despite the government's strategy of limiting imports of consumer goods, which has held back retail trade. Nevertheless, thanks to services being open to private enterprise, employment in this sector, and the private sector as a whole, significantly increased.

The ADB said the quality of the national budget has also increased as the government continues to work for a reduced deficit. In 1999, the budget ran a deficit of 2.2% of GDP, compared to 3.4% in 1998. At the same time, despite the government's tough monetary policy, average monthly inflation was 1.9%, equal to an annual level of 26%, as in 1998. The main cause of inflation was the rapid devaluation of the sum, by 27.3% in the course of the year.

The balance of payments was also unstable. The fi-nancial and economic crisis in Russia, low cotton har-vest, falling prices for major exports all worsened the balance of payments. In order to fix the situation, the government introduced additional restrictions on imports, toughened access to forex, and increased foreign borrowing, used for financing state investment. In 1999, according to the ADB, the current out deficit increased to 1.3% of GDP, compared to 0.6% a year earlier. The main reason was growth in imports regardless of the import barriers of 10%, compared to a fall of 25% the previous year.

Nevertheless, gold and forex reserves reached $1.2 billion by the end of 1999 (equal to 5.8 months of im-ports) due to a capital surplus of $342 million. The sur-plus was achieved by selling a foreign bank $150 million of gold and loans received on earlier agreements. ADB said that by the end of 1999, the national foreign debt increased to $3.8 billion (25% of GDP), compared to $3.2 billion (24% of GDP) at the end of 1998.

ADB says the debt service ration rose to 11% in 1999, compared to 9% in 1998. According to the bank, there were significant suc-cesses in macroeconomic stabilization, despite the nega-tive external factors. Among the main reforms recently are a 50% increase in state procurement prices for cot-ton and wheat, a debt-write off for agriculture tax ar-rears, and deferral to 2002 of company debts for prod-ucts supplied.

The tax burden on agriculture was also significantly reduced, including by merging some taxes into a unified land tax. Other measures for reducing taxes included a three-year exemption period for newly-formed private farms and agricultural business centers, and information services for private farmers. Uzbekistan's GDP in 1999 came to 2.048 trillion sum. Forecast GDP for 2000 is 2.225 trillion sum. Revenues are to come to 28.2% of GDP (650 billion sum), spending to 32% of GDP (712.4 billion sum, the deficit to 2.8% of GDP.

PROSPECTS FOR 2000

According to the ADB, Uzbekistan has mixed prospects for 2000. According to government announcements and rulings from 1998 and 1999, in 2000 foreign trade and the forex market are to be liberalized, accompanied by structural reform on agriculture and banking. These reforms are expected to benefit the econ-omy. At the same time, the ADB is warning that liber-alization will lead to inflation and will accelerate corpo-rate and banking reform.

If the reforms are carried through, temporary mac-roeconomic problems could result in slowed growth in the short term. However, the ADB says that after structural reform and prices even out, there could be a stable increase in real GDP. GDP growth is expected to slow to 3% in 2000. The move to a single exchange rate (in place of an offi-cial and black market rates) could boost inflation. Budget revenues could also fall, reducing growth. The ADB says the 2000 budget approved by par-liament calls for a budget deficit of 3% of GDP. Ac-cording to the International Monetary Fund, that level is temporary and sustainable.

According to the ADB, the balance of payments should improve in 2000, continuing through the me-dium term period. This year the current account deficit is to fall to 1% of GDP, mainly due to growth in ex-ports. After the reform program, exports should rise fast, imports will also rise, enabling state-owned compa-nies to modernize. In the medium term, increased de-mand for electricity and industrial goods from neigh-boring countries is also expected. Increased grain har-vests are expected to make Uzbekistan practically self-sufficient, grain imports will be small.

The ADB also expects foreign direct investment to grow in the next few years due to the improved invest-ment climate following reform. After liberalization of the foreign trade and forex markets, in 2000, in 2001 growth is predicted at 4%, with inflation at 20%. The 2001 budget deficit is forecast at 3% if GDP, spending on social se-curity is to grow. The current account deficit is to rise to 2% of GDP in 2001, mainly due to increased imports. Asian Development Bank was set up in 1966 for aiding the eco-nomic and social development of the Asian-Pacific region. The bank's members include 40 countries in the region and 16 European countries. Today ADB is one of the largest international financial in-stitutions with assets of around $100 billion. The ADB has made loans of more than $50 billion. Uzbekistan joined the bank in 1995. Since 1996 the ADB has lent Uzbekistan $267 million for five proj-ects.

ECONOMIC DEVELOPMENT ISSUES

The main expected event for the economy is the planned introduction of a convertible currency by the end of 2000. Convertibility will boost exports and at-tract major foreign direct investment, as well as re-ducing capital flight, which has a negative impact on the economy. The ADB says the signing of an agreement on partnership with the European Union in July 1999 was a serious step to integration into the world economy. In order to stimulate exports, the government reduced profit tax from 35% to 30%. At the same time, deferral of payment of VAT on imported goods for manufac-turing export goods of up to 90 days was also permitted. However, the multiple exchange rate system is still holding export growth and FDI back.

There are also problems with the government's large business privatization program, due to low foreign interest. The main problem remains the government's reluctance to allow foreign investors to take controlling stakes. Other problems in privatization, according to the ADB, include unrealistic valuations, the poor invest-ment climate, low international prices for the products of the businesses up for privatization. Serious worries are also raised by the existing legislation, which is not developed enough to provide shareholder and privatized companies with defenses against state interference in their business.

At the same time, the ADB comments that reform in the financial sector is moving fast, helped by a $25 million loan from the World Bank approved June 1999. The project calls for strengthening management of commercial banks, increasing the Central Bank's super-visory functions, and increasing openness for foreign fi-nancial structures. According to the ADB, the prospects for long-term growth are good. Rich natural resources, huge human resources, and commercial and trade traditions are the basis for successful transition to a fast-growing market economy. Reducing unemployment is a vital step in conditions were there is a continuous influx of workers. According to the ADB, until stable economic growth is achieved, it will be impossible to solve this problem, and the number of families below the poverty line will con-tinue to grow. According to the authorities, in 1998, 23% of the population was below the official poverty line of 910 sum per person per month, less than $5 at the market exchange rate.

In this situation, the main tasks for the government have to be strengthening growth and diverse develop-ment of the economy. Success in those two tasks de-pends on increasing the speed of reform. The current situation in the economy remains difficult. First, despite growth in international cotton and gold prices, the effect is not enough. Increasing currency earnings depends on increasing exports and expanding the range of export goods. Second, the yield of cotton and wheat remains ex-tremely low by international standards. Increasing pro-duction could be achieved by increasing yield, but that would require changes in labor payment, meaning wide-ranging reform of the agricultural sector. Third, says the ADB, a gradual approach to reform has not resulted in any economic disasters, but has not provided strong growth either. Diversification remains low, making fast-growing export-oriented businesses and the realization of the potential of traditional sectors essential. And that requires faster reform.

The ADB sees several risks in the medium term. First, Russian economic recovery is being held back by political instability, casing investor and lender distrust. That could lower demand for Uzbek exports, as 45% is to the former Soviet Union, mainly Russia. Second, there is a risk low pieces for the two main exports - cotton and gold, could cause further delay in reform of foreign trade and forex.

he Foreign Trade Ministry of Uzbekistan has ex-tended the tender for managing the business center of the International Trade and Exhibition Center in Tash-kent to July 20. The Ministry said the tender was originally to have closed June 19. America's Ambassador Group and Intercontinen-tal, American-Israeli Martins-Hoffman and Britain's Mercury-FM have announced their intention to bid. In-tercontinental is already running the center's 12-story hotel.

A commercial tender for a 50% stake in Khalkaro Khamkorlik Markazi, formed from the business center, has also been extended to July 20. The funds raised by the sale will go to paying a $60.17 million loan from Turkey's Eximbank taken out to build the center. Khalkaro Khamkorlik Markazi has authorized capital of $70.8 million. Subsidiaries of the Foreign Trade Ministry own 42%, 8% is to be sold freely.

The 60,380 square meter (40,000 square meter use-ful area) business center has 3 underground and 17 above-ground stories and was completed by Turkey's Ay-Sel April 2000. The business center is to house offices of diplo-matic missions, international organizations and foreign companies. The International Trade and Exhibition Center is worth around $350 million and includes the headquar-ters of the National Bank for Foreign Trade, the 12-story five-star Intercontinental hotel, Disneyland, Aqua-park and an information center.

zbek-American JV Rubicon Wireless Communi-cation (trade mark Rubicon U-Tel) is deferring a $425 million project for developing CDMA fixed networks in Uzbekistan for an undefined period due to problems with financing, said technical director Nikolai Gorshenin.

He said the project had planned to used $25 mil-lion of financing from foreign banks. The remainder was to be reinvested profits. Talks were held with Spain's ETS group. Gorshenin said the project calls for reaching 266,000 clients over 10 years, with 85% being fixed and 15% mobile. The project was also to provide internet access. By 2010 Rubicon was planning to have 11,000 internet us-ers. The project was to begin this year. Gorshenin said Rubicon is not dropping the proj-ect and is continuing to look for sources of financing.

He said the cost of a minute of talk time on a fixed line is a tenth of that for mobile, making their service accessible to a wide range of clients. Gorshenin said Uzdunrobit and Indonesia's Buztel also have licenses for fixed cellular services, but have yet to implement the service. Rubicon Wireless Communication, which provides D-AMPS services, is one of six Uzbek operators. It be-gan operating April 1997. The company has invested around $12 million in Uzbekistan. Its network currently covers Tashkent and the surrounding area. It has 2,200 subscribers.

otton is ripening in Uzbekistan 15-20 days earlier than usual, meaning the harvest will begin early August, said Adurazak Kayumov of the cotton department of the Agriculture and Water Ministry. He said most of the plantations were flowering and buds were already forming on 200-300 hectares. Kayumov said the hot summer is good for cotton. The yield is expected to be 3-4 centners per hectare higher than last year, in some regions as much as 5-6 centners higher.

In 2000, cotton was planted on 1.425 million hec-tares in Uzbekistan, 80,000 hectares less than last year. That area has been seeded with cereal crops. Neverthe-less, the increased yield means a harvest of 3.9 million tons of raw cotton is expected, compared to 3.6 million tons in 1999. State procurements are at the same level as last year - 30% of planned production.

This year the procurement price was raised from 30,000 sum per ton last year to 52,000 sum. Uzbekistan is the fifth largest cotton producer and second largest exporter. Annual production is 3.5-3.7 million tons of raw cotton and 1.0-1.2 million tons of cotton fiber. More than 85% of cotton fiber is exported.

urther delays of Uzbekistan joining Article Eight of the IMF Charter that provides for convertible national currency in everyday transactions are becoming dangerous for the country, Robert Rosenberg, the IMF permanent envoy in that country, said on Wednesday as he was speaking on the findings of the fund's mission in Uzbekistan.

The mission and the Uzbek Cabinet discussed the routine issues of possible social and economic consequences of liberalizing currency regulations but have not even started the work on the financial program of backing Uzbekistan if the country joins Article Eight, Rosenberg said. The Cabinet is aware of the need to liberalize the economy and is taking steps in that direction, albeit not consistently, he said.

The delays in doing it are becoming truly dangerous, because even if foreign investments and exports increase, the normalization of the economic situation will take at least two to three years, Rosenberg said.

The country's balance of payments has deteriorated since 1996 when the Uzbek Cabinet went back on its commitments in macroeconomic policy, he said. The inflow of foreign currency and export have fallen, Rosenberg said. The exchange rate, unduly favorable for the Uzbek currency, discourages both the exporters and potential foreign investors, he said. The next IMF mission will arrive in Uzbekistan in November.