Publication: Monitor Volume: 7 Issue: 69

The International Monetary Fund has announced that it will not be replacing its representative in Uzbekistan, Christoph Rosenberg, who returns to Washington on April 14 after three years in Tashkent. This effectively marks the end of meaningful IMF activities in Uzbekistan–and suggests that foreign investors’ disappointment with the management of Central Asia’s largest economy has reached new heights.

Relations between Tashkent and the IMF proceeded more or less on course until late 1996, when the Karimov regime introduced a multiple exchange rate system and reduced the som’s convertibility for purchases of goods and services abroad. A bad cotton harvest was the government’s rationale for these moves, and numerous officials–including President Karimov–promised to unify the exchange rate and restore the som’s convertibility as soon as possible. Despite reported improvements in the harvest in subsequent years, these restrictions continued, and new restrictions on imports and domestic prices were added. As in Soviet times, these restrictions gave rise to a large black market for hard currency, and many consumer goods and foodstuffs began to disappear from the state stores. While households were forced to buy black-market dollars at a rate typically two to four times higher than the official exchange rate, companies permitted to buy foreign exchange at the official rate could make a killing by reselling the dollars (or the imports they purchased) at higher prices in the informal sector.

Rosenberg and numerous IMF missions spent years trying to convince the Uzbek authorities to abolish this restrictions and thereby remove the basis for much of the corruption that plagues Uzbekistan’s economy. As with many other foreign investors who have pulled out of Uzbekistan since 1996, the Fund now appears to have given up. Calling Uzbekistan’s economic managers “corrupt” and “isolationist,” Rosenberg argued that Tashkent is on an “unsustainable” economic course, constructed for the benefit of a “select few.”

These developments have confirmed Uzbekistan’s membership in the club of CIS “refusedniks”–which include Turkmenistan and Belarus–countries with which the IMF rules out cooperation because of their governments’ unwillingness to adopt many of the basic institutions and policies of a market economy. The Karimov regime justifies its policies of economic isolation by claiming that economic instability would result if prices, imports, and the exchange rate were all liberalized. While this may be true, Uzbekistan’s economy may well be stagnating–if not decaying–behind the Soviet-era walls of protection and regulation that have been constructed. For Central Asia’s largest economy–and the only country in the region with more than a token engineering sector–stability today may be being purchased at the cost of decreasing living standards tomorrow (Bloomberg, The Wall Street Journal, March 27).

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