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Uzbekistan: Som Day Has Arrived, As Currency Convertibility Is Announced

Uzbekistan says it will make its national currency, the som, fully convertible on 15 October. This long-awaited step was announced in a letter this week from the government and Central Bank to the International Monetary Fund.

Prague, 10 October 2003 (RFE/RL) -- At a press conference on 8 October, Uzbek Deputy Prime Minister and Economy Minister Rustam Azimov told journalists that Uzbekistan has fulfilled its currency-convertibility obligations to the International Monetary Fund (IMF).

"This letter means that we irrevocably accept the obligation that starting 15 October, all currency regulations in Uzbekistan will be made in accordance with Article 8 of the IMF," Azimov said.

According to the joint press release from Azimov and the head of the IMF mission in Uzbekistan, Erik de Vrijer, Tashkent has lifted all currency restrictions and abolished the practice of multiple currency rates.

De Vrijer described Uzbekistan's decision as an "important" economic step but said that while the move shows a commitment to economic reform, it is "not the only step needed" in the country.

The lack of a freely convertible currency was frequently cited as the single greatest barrier to Uzbekistan's economic development. The decision to finally convert the currency now means that foreign businesses are more likely to open factories in Uzbekistan, as long as it is possible to convert profits from soms to dollars or euros at a rate set by the market, not by the Uzbek government.

Measures already adopted by the Uzbek government include the abolishment of the preregistration requirement of export-import contracts, lifting the ban on payments to offshore zones, and eliminating limits on the purchase of currency both by companies and individuals.

At this week's press conference, Azimov noted that the funds of Uzbek citizens will soon be able to be freely converted in exchange offices, adding that, beginning on 8 October, "funds in Uzbek soms of noncitizens will be also converted according to regulations derived from Article 8 -- in other words, without any limitations."

At the same time, Azimov guaranteed that the inflation rate in Uzbekistan will not skyrocket, forecasting that the final level will not exceed 8 percent to 8.5 percent this year and around 8 percent next year.

However, with regards to price stability, Azimov said: "We cannot guarantee stability of prices because it is not the task of the government. But we can guarantee stability of monetary-credit policy, guarantee that there will not be any intervention in the monetary and inflation process from the side of the government and Central Bank."

The decision is part of an economic action plan unveiled by the Uzbek government earlier this year in an effort to satisfy the demands of the IMF. Under the plan, all barriers to currency convertibility were to be lifted.

This week's announcement came one month ahead of schedule. Azimov had told journalists in Tashkent in June that Uzbekistan would introduce full currency convertibility by November.

The decision to introduce the convertibility of the som follows a history of postponed and missed deadlines. In 2000, President Islam Karimov pledged to restore currency convertibility but failed to do so. As a result, the IMF closed its Tashkent office in April 2001.

Uzbekistan also missed two other deadlines last year to introduce convertibility and make other changes to liberalize trade and agriculture. The IMF consequently declined to renew an economic reform program in Uzbekistan.

But in an interview with RFE/RL in July, the IMF's De Vrijer noted that full convertibility of the som will not solve all of the problems facing the Uzbek economy. "Introducing currency convertibility is an important step for Uzbekistan, but it is not a panacea for all the problems besetting the Uzbek economy," he said. "An important thing it will do is to clearly expose the problems that need to be addressed, instead of hiding them behind the veil of an overvalued exchange rate."

Of the five Central Asian states, only Turkmenistan does not yet have full currency convertibility.

(Gulnoza Saidazimova of RFE/RL's Uzbek Service contributed to this report.)