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Uzbekistan: Ambassador Defends Foreign Exchange Limits

  • Charles Recknagel

Washington, 20 November 1996 (RFE/RL) -- Uzbekistan's ambassador to the United States defends Tashkent's decision to limit the exchange of its currency into dollars, saying it is necessary to stem an outflow of hard currency from his country.

Sodyq Safaev, interviewed by our correspondent in Washington, D.C., also said the stricter foreign exchange policy is temporary and that Tashkent remains committed to full convertibility of its currency in the near future. He said the new foreign exchange policy would not affect foreign investors' ability to repatriate profits from Uzbekistan.

Tashkent last month restricted the number of banks where Uzbek citizens and foreign companies can convert the national money, the som, into hard currency -- cutting the number from 14 banks to two. News reports say the action has left businesses holding millions of dollars of unconvertible soms and sent black market dollar rates soaring.

Safaev said Tashkent restricted access to its hard currency reserves because demand had grown so great it risked compromising the government's own plans for using the reserves to develop Uzbekistan's economy.

He told RFE/RL that private sector demand for hard currency this year is already twice that last year. He said that in 1995 "over $1.3 billion U.S. were exchanged...(but) within only the first half of this year...that figure has already been overlapped."

According to Safaev, the increased hard currency demand is mainly from traders in consumer items such as cigarettes, electronics, and foodstuffs, which he said are too inexpensive to import under Uzbekistan's current tariff and tax codes.

He warned that if the som remained easily exchangeable, without first adjusting tariff and tax codes, it could lead to a "washing out of all Uzbekistan's hard currency reserves (to buy) such goods as cookies and so on." He said the government prefers to use its hard currency reserves instead "for investment purposes (and) for preparing the takeoff of the economy."

But Safaev said that "there is no doubt that the convertibility of the som is (Tashkent's) ultimate goal, and maybe (even) immediate goal." He did not say when Tashkent will declare full convertibility of the sum, and last month's limits carry no time limit.

Safaev told RFE/RL that foreign investors need not be frightened by the closing of most exchange windows. He said if big investor's contracts include a scheme for repatriating profits it is "for sure (the repatriation) will be implemented in the agreed form."

Financial experts have expressed surprise over Tashkent's decision to limit currency exchange, saying it could shake investors' confidence in Uzbekistan's commitment to free-market economics. They say governments faced with too great a demand for hard currency usually sell gold reserves or adjust the exchange rate of their currency, rather than limit access to hard currency and risk slowing private sector activity.

Safaev, an economist by training and previously Uzbekistan's foreign minister, said he recognized "that the main financial institutions of the world (have) expressed their concerns with trends in Uzbekistan." But he said Tashkent's step was adopted "according to ...the local situation" and noted that "no textbooks exist for how to best transform previously command economies to market ones."

He called selling gold to increase hard currency supplies "a populist way" to satisfy the needs of a population for consumer goods, and said Tashkent prefers to use its sizable gold reserves for investments. He cited as one example Tashkent's recent decision to invest its own hard currency reserves, rather than seek credits, to build a car production plant in Uzbekistan.