Following his easy re-election to another five-year term in January, Uzbekistan President Karimov announced his intention to at least partly liberalize economic policy, in order to create more favorable conditions for privatization and foreign investment (Reuters, January 2000). While liberalization measures would go a long way toward meeting the concerns of the IMF and World Bank, Karimov’s rhetoric has yet to be matched by concrete actions.
The quality and quantity of Uzbekistan’s macroeconomic data leave a great deal to be desired. This has been the case especially since late 1996, when the IMF halted its crediting of Uzbekistan’s economy–and monitoring the official economic data–in response to the imposition of extensive administrative controls on Uzbekistan’s foreign exchange market. Still, a number of indicators suggest that Uzbekistan is experiencing growing balance of payments pressures. Exports declined 10 percent in the first eight months of 1999. While this fall was due in part to declining sales to other CIS countries in the wake of the 1998 Russian financial crisis, it also reflected the fact that foreign sales of cotton–Uzbekistan’s largest export–were cut in half. The share of cotton in total exports fell from 40 percent to 23 percent during this time (TACIS Uzbek Economic Trends, October 1999). The absence of significant lending by the IMF and World Bank, combined with restrictions on investors’ abilities to repatriate their profits, is reducing the inflow of investments to a trickle. Uzbekistan’s foreign exchange reserves have fallen to some US$1 billion (down from US$2 billion in 1996, when the currency controls were introduced), and would have fallen further were it not for a restrictive licensing scheme that artificially limits imports. Perhaps most ominously, the som is collapsing on the black market: As of mid-February, a dollar purchased 140 som at the official exchange rate–and 850 som on the street.
The government and national bank are aware of the problems caused by Uzbekistan’s overvalued exchange rate and heavily administered foreign trader system. According to a presidential decree, the som’s convertibility is to be restored by the end of 2000. Still, there are few indicators that Tashkent is preparing for serious changes in economic policy. For one thing, President Karimov carried out only a minor government reshuffle after his re-election. Rustam Azimov, the finance minister who is widely expected to lead the liberalization effort, was not promoted in the new government, which remains led by Prime Minister Utkir Sultanov. This apparent complacency may result from the relatively strong GDP numbers reported in 1999: GDP is officially listed up 4.4 percent last year, due in part to a bumper grain crop and 6.1 percent growth in industrial output (Interfax Central Asia & Caucasus Business Report, Issue 63). But according to alternative IMF estimates, GDP growth during the past years was much lower than officially reported–and may in fact have been negative.
2000 could therefore be the year in which Uzbekistan’s economic chickens come home to roost. If the foreign exchange market and foreign trade are liberalized significantly, a major devaluation of the som, and much higher inflation rates could well result. So could a sharp reduction in GDP growth rates, both reported and actual. If on the other hand the government only partly implements Karimov’s convertibility decree–or if the foreign exchange market is liberalized while imports remain subject to administrative control–Tashkent may do little more than postpone the shock of adjustment. The longer the delay, the sharper the adjustment could be.
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