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Uzbekistan: New Decree Sparks Currency Crisis Atmosphere

By Lowell Bezanis

Tashkent, 11 November 1996 (RFE/RL) - A recent decree issued by President Islam Karimov -- effectively banning hard-currency transactions and the conversion of Uzbekistan's national currency, the som, into dollars -- has created a crisis atmosphere among local traders and many foreign investors.

Our correspondent in Tashkent reports foreign diplomats, international lending institutions, as well as significant investors have closed ranks and are quietly attempting to persuade all Uzbek officials to change the restrictive new policy. The decree, issued late last month, attemts to stamp out the increasing black market trade in soms. It follows a decree issued last year, which restricted currency-conversion operations to certain licensed enterprises.

While explanations for the som's precipitous fall against the dollar on the black market since August vary, it is clear the authorities have clamped down to prevent its further slide -- an approach foreign and some local economists consider to be untenable.

Speaking off the record, several well-informed observers stress that the draconian, new administrative measures will bring immediate harm to Uzbekistan's new entrepreneurs, and threatens to spark an inflationary spiral just after Tashkent brought it under control last year. Price hikes in the bazaars are already noticeable, and it is only a matter of time before Tashkent's wiser businessmen heavily mark up goods, which will become increasingly harder to import in the near future.

These sources also stress that the tough new measures not only restrict anyone who is invested in Uzbekistan, leaving them with millions of dollars worth of unexchageable soms, but undermine Uzbekistan's hard-won reputation as a stable and attractive country in which to invest. If present dissatisfaction and talk of departing Uzbekistan turns into a headlong rush to leave, diplomats say it is unlikely they will return in the near future. Currently, it is unclear if or when Uzbekistan's President Karimov will review the new measures with an eye to relaxing them.

Several observers express the hope that the present crisis will ultimately help Uzbekistan move more briskly toward full currency convertability, and in general move away from its present reliance on centralization to control much of the economy. They see elimination of the country's convuluted conversion regime; where two official rates, plus so-called margins, were a damper on business and a recipe for abuse.

Diplomats and bankers both noted that the present crisis, while boding ill for the future, if not resolved in the next several months is actually more of a perceptual than a real problem. They note that Uzbekistan's economy is fundamentally strong and remains head-and-shoulders above its Central Asian neighbors. According to them, Uzbekistan has more than sufficient hard currency reserves, $1.7 billion, to eliminate easily and quickly the gaps between the official and black market rate for the som by auctioning dollars.