A delegation from the International Monetary Fund (IMF) stated this week that Uzbekistan has made progress in reforming its heavily centralized economy. It added, however, that more observation is needed before the IMF resumes full cooperation with the Central Asian republic. RFE/RL looks at the steps taken by the Uzbek government toward the liberalization of its foreign-exchange regime, one of the one of the most important elements of the IMF staff-monitored program.
Prague, 27 June 2002 (RFE/RL) -- A delegation from the International Monetary Fund, or IMF, concluded a two-week visit to Uzbekistan this week (25 June). The delegates' mission was to review the implementation of economic reforms agreed to in January under an IMF staff-monitored program. The measures were to be completed by Uzbekistan by the end of June.
The plan covers such wide-ranging issues as monetary policy, fiscal regime, state budget management, credit-lending policies, banking reforms, and agriculture.
In a statement released jointly with the government and the Central Bank of Uzbekistan at the end of the trip, the IMF said Tashkent has made "significant progress" in implementing the plan. It says the Uzbek authorities have taken "all measures set as structural benchmarks" under the program.
The document notes, however, the necessity to extend the monitoring period for an additional two months "in order to enable IMF staff to assess the sustainability and irreversibility of the reforms."
According to the Uzbek business Internet portal uzreport.com, the head of the IMF mission, Erik De Vrijer, told a news conference that the additional two months could lead to the resumption of full cooperation with Uzbekistan. Last year, the IMF withdrew its representative from Uzbekistan due to frustration over the lack of economic reforms.
Dafne Ter-Sakarian is an analyst for the London-based Economist Intelligence Unit. She tells RFE/RL that the IMF is giving the Uzbek government "another chance," in view of the efforts it has made in the past months to implement reforms. She says the most noticeable steps have been taken toward the liberalization of the country's foreign-exchange regime.
There are currently two official, state-controlled exchange rates in Uzbekistan: a commercial rate for business transactions and an over-the-counter rate for individuals. At the same time, quotas on the amount of som -- the national currency -- that can be turned into dollars lead to a thriving black market currency exchange. Ter-Sakarian: "There's been progress on convertibility. The spread between the black-market rate and the over-the-counter-market rate has narrowed, as stipulated in the [staff-monitored] program. Official exchange rate is still quite a way away but it's all gradually coming down. And [the government] increased the limits on purchase of foreign currency."
The official rate currently stands at 750 soms to the dollar, and the commercial rate at 990 soms to the dollar. On the black market, the exchange rate hovers around 1,150 soms to the dollar.
The statement of the IMF suggests that the unification of convertibility will not be completed by the end of the month. But Ter-Sakarian says she believes there is a possibility the process toward convertibility will be completed within the next two months, considering the positive measures the authorities have already taken.
However, Ter-Sakarian notes, the Uzbek government is "not very transparent" about the process. She says the Uzbek government may be tempted to use "informal ways" to curb the process, through red tape or restrictions on currency markets, for example. "And these are things that aren't really changing. For instance, you know, they've increased the limit on the purchase of foreign exchange to $1,000 (for individuals). So that looks good. But what they don't say quite so loudly is that you only have the right to buy once a quarter."
Ter-Sakarian points out that the government makes huge profits from the multiple exchange-rate system, under which it pays less for dollars than it is getting from the public and investors. What she calls an "implicit tax" penalizes local and foreign businesses and invites corruption.
Ter-Sakarian also said improvements are lacking in other crucial issues, such as the procurement practices in the cotton industry, the country's main cash crop and another source of corruption.
Many observers insist the Uzbek government should take advantage of the current "favorable" environment to accelerate reforms. The IMF itself has renewed interaction with Uzbekistan after the country's increased international profile since 11 September. Uzbekistan was the first former Soviet Central Asian country to offer a military base for U.S. operations in Afghanistan. Ter-Sakarian: "The climate of relations is good. And it does appear there's been a change in President [Islam] Karimov's view. Before he didn't trust the IMF at all. I think now perhaps there is a growing feeling among some sections of government that it's going to be increasingly difficult to carry on with the current [multiple foreign-exchange] system, and that some change is needed."
Last week, a regular session of the Uzbek parliament, the Oliy Majlis, itself noted that commercial banks are not doing enough to attract foreign investments. Most of the analysts blame the inconvertibility of the som for turning Uzbekistan into an economic backwater by stifling foreign business in the country.
Analysts say the implementation of the reforms is the best way for Uzbekistan to attract maximum economic support. If Uzbekistan manages to liberalize exchange rates by September, they point out, the country could then begin new loan program talks with the IMF.
But this goodwill may not last if Tashkent is seen as curbing real reforms. If the country fails to push forward reforms, analysts say, the economy could sink further into stagnation. According to the Economist Intelligence Unit, real gross domestic product in Uzbekistan will increase by 2 percent this year, compared with 4.5 percent in 2001.
The European Bank for Reconstruction and Development (EBRD) -- the first investor in the private sector in Central Asia outside the oil and gas industry -- has made convertibility a major issue in its relations with Tashkent.
In an interview with RFE/RL at the occasion of the EBRD's annual meeting in Bucharest last month, President Jean Lemierre suggested the bank is ready to significantly increase investment in Uzbekistan if the government's reforms show real progress: "We are confident that Uzbekistan will move forward [in the convertibility issue]. May I say this is in the interest of the country. There are many possibilities -- many opportunities -- for investment. We work a lot in Uzbekistan, [but] the time must come once more to make a new step, which is to improve the exchange-rate system."
The EBRD envisages providing up to 200 million euros this year. Since Uzbekistan became a member of the EBRD in 1992, the total volume of credits and investments of the bank in the country totals about 700 million euros.
Ter-Sakarian stresses the eventual resumption of full cooperation between the IMF and Uzbekistan this year would be interpreted as an attractive "signal" by other organizations, states, and foreign investors.
Russia's Novecon news agency reported this week that the U.S. government has announced plans to markedly increase the volume of loans issued for macroeconomic restructuring projects in Uzbekistan after Tashkent completes the IMF program.
Prague, 27 June 2002 (RFE/RL) -- A delegation from the International Monetary Fund, or IMF, concluded a two-week visit to Uzbekistan this week (25 June). The delegates' mission was to review the implementation of economic reforms agreed to in January under an IMF staff-monitored program. The measures were to be completed by Uzbekistan by the end of June.
The plan covers such wide-ranging issues as monetary policy, fiscal regime, state budget management, credit-lending policies, banking reforms, and agriculture.
In a statement released jointly with the government and the Central Bank of Uzbekistan at the end of the trip, the IMF said Tashkent has made "significant progress" in implementing the plan. It says the Uzbek authorities have taken "all measures set as structural benchmarks" under the program.
The document notes, however, the necessity to extend the monitoring period for an additional two months "in order to enable IMF staff to assess the sustainability and irreversibility of the reforms."
According to the Uzbek business Internet portal uzreport.com, the head of the IMF mission, Erik De Vrijer, told a news conference that the additional two months could lead to the resumption of full cooperation with Uzbekistan. Last year, the IMF withdrew its representative from Uzbekistan due to frustration over the lack of economic reforms.
Dafne Ter-Sakarian is an analyst for the London-based Economist Intelligence Unit. She tells RFE/RL that the IMF is giving the Uzbek government "another chance," in view of the efforts it has made in the past months to implement reforms. She says the most noticeable steps have been taken toward the liberalization of the country's foreign-exchange regime.
There are currently two official, state-controlled exchange rates in Uzbekistan: a commercial rate for business transactions and an over-the-counter rate for individuals. At the same time, quotas on the amount of som -- the national currency -- that can be turned into dollars lead to a thriving black market currency exchange. Ter-Sakarian: "There's been progress on convertibility. The spread between the black-market rate and the over-the-counter-market rate has narrowed, as stipulated in the [staff-monitored] program. Official exchange rate is still quite a way away but it's all gradually coming down. And [the government] increased the limits on purchase of foreign currency."
The official rate currently stands at 750 soms to the dollar, and the commercial rate at 990 soms to the dollar. On the black market, the exchange rate hovers around 1,150 soms to the dollar.
The statement of the IMF suggests that the unification of convertibility will not be completed by the end of the month. But Ter-Sakarian says she believes there is a possibility the process toward convertibility will be completed within the next two months, considering the positive measures the authorities have already taken.
However, Ter-Sakarian notes, the Uzbek government is "not very transparent" about the process. She says the Uzbek government may be tempted to use "informal ways" to curb the process, through red tape or restrictions on currency markets, for example. "And these are things that aren't really changing. For instance, you know, they've increased the limit on the purchase of foreign exchange to $1,000 (for individuals). So that looks good. But what they don't say quite so loudly is that you only have the right to buy once a quarter."
Ter-Sakarian points out that the government makes huge profits from the multiple exchange-rate system, under which it pays less for dollars than it is getting from the public and investors. What she calls an "implicit tax" penalizes local and foreign businesses and invites corruption.
Ter-Sakarian also said improvements are lacking in other crucial issues, such as the procurement practices in the cotton industry, the country's main cash crop and another source of corruption.
Many observers insist the Uzbek government should take advantage of the current "favorable" environment to accelerate reforms. The IMF itself has renewed interaction with Uzbekistan after the country's increased international profile since 11 September. Uzbekistan was the first former Soviet Central Asian country to offer a military base for U.S. operations in Afghanistan. Ter-Sakarian: "The climate of relations is good. And it does appear there's been a change in President [Islam] Karimov's view. Before he didn't trust the IMF at all. I think now perhaps there is a growing feeling among some sections of government that it's going to be increasingly difficult to carry on with the current [multiple foreign-exchange] system, and that some change is needed."
Last week, a regular session of the Uzbek parliament, the Oliy Majlis, itself noted that commercial banks are not doing enough to attract foreign investments. Most of the analysts blame the inconvertibility of the som for turning Uzbekistan into an economic backwater by stifling foreign business in the country.
Analysts say the implementation of the reforms is the best way for Uzbekistan to attract maximum economic support. If Uzbekistan manages to liberalize exchange rates by September, they point out, the country could then begin new loan program talks with the IMF.
But this goodwill may not last if Tashkent is seen as curbing real reforms. If the country fails to push forward reforms, analysts say, the economy could sink further into stagnation. According to the Economist Intelligence Unit, real gross domestic product in Uzbekistan will increase by 2 percent this year, compared with 4.5 percent in 2001.
The European Bank for Reconstruction and Development (EBRD) -- the first investor in the private sector in Central Asia outside the oil and gas industry -- has made convertibility a major issue in its relations with Tashkent.
In an interview with RFE/RL at the occasion of the EBRD's annual meeting in Bucharest last month, President Jean Lemierre suggested the bank is ready to significantly increase investment in Uzbekistan if the government's reforms show real progress: "We are confident that Uzbekistan will move forward [in the convertibility issue]. May I say this is in the interest of the country. There are many possibilities -- many opportunities -- for investment. We work a lot in Uzbekistan, [but] the time must come once more to make a new step, which is to improve the exchange-rate system."
The EBRD envisages providing up to 200 million euros this year. Since Uzbekistan became a member of the EBRD in 1992, the total volume of credits and investments of the bank in the country totals about 700 million euros.
Ter-Sakarian stresses the eventual resumption of full cooperation between the IMF and Uzbekistan this year would be interpreted as an attractive "signal" by other organizations, states, and foreign investors.
Russia's Novecon news agency reported this week that the U.S. government has announced plans to markedly increase the volume of loans issued for macroeconomic restructuring projects in Uzbekistan after Tashkent completes the IMF program.
