Recently, an IMF delegation visited
Uzbekistan for the first time since 1996, and discussed the issue of convertibility of the
Uzbekstani currency, the soum. No firm statements about the terms of liberalizing
the currency regime were made, but during the spring of this year, one of two official
exchange rates were abolished making the official exchange rate more realistic. Beginning
on July 1, a few banks received permission to open foreign currency exchange offices and
to set exchange rates themselves. Business entities and organizations are not served by
these changes and only Uzbekistanis traveling abroad are allowed to buy up to US$ 300.
Exchange volumes so far have been small. Considerable foreign investments that Uzbekistan
attracted during the first years of its independence and its vast natural resources helped
keep the Uzbekistani economy afloat. Now, however, Uzbekistani economy is in a desperate
condition.

Credits received from foreign banks made the implementation of several projects
possible. The Uzbekistani economic model, much-touted in Uzbekistan have been lauded by
official propaganda as "great successes of the Uzbekistani economic model"
although it is never mentioned which countries throughout the world are studying or
adopting the model. When President Karimov at the beginning of the year declared that new
liberalization measures should be implemented in Uzbekistan, it led many analysts to
question the reason for such a change in plans for Uzbekistan’s economy that only a
few months ago was declared an example of success. Perhaps Karimov finally seems to be
showing the desperate concern about the low living standards of the Uzbekistani population
that face desperate levels of poverty. But in order to build wealth through increase
exports and modernize obsolete infrastructure, Uzbekistan needs billions of dollars that
cannot be generated by the Uzbekistani economy itself. Foreign investments to Uzbekistan
are tiny.

The inconvertibility of the soum was often cited as the main obstacle for
investments but other formidable problems exist as well, such as high taxes, bureaucratic
red tape, corruption, and low purchasing power of population. Compared to Uzbekistan, for
example, Russia has many advantages, such as much larger volume of market, better
geographic location, lower taxes, comparative stability, and a fully convertible currency.
Uzbekistani hard currency reserves are running low. Most sources indicate that Uzbekistan
had about US$1 billion in hard currency reserves at the beginning of 2000. An estimated
US$ 600-900 million of foreign debt must be repaid during 2000 alone. While Uzbekistan is
current on its repayment obligations, many experts question how long this positive
situation will last.

It cannot be expected that the introduction of convertible currency will help
Uzbekistan’s ailing economy. The measure should indeed eliminate many inefficiencies
of state regulation and decrease the scope of government corruption. Nevertheless, more
will have to be done to bring the economy around. Uzbekistan’s present high tax rates
represent a problem of equal importance as convertibility. But tax reduction for
Uzbekistanis is not mentioned in Karimov’s liberalization program adopted at the
beginning of the year. The great concern is that all liberalization measures implemented
in Uzbekistan during the first half of 2000 were too small in scope and to slow in
implementation. It is becoming increasingly clear that Uzbekistan has literally a few
months left to launch full-scale liberalization measures or face bankruptcy.

Anonymous, Tashkent