Uzbek Leaders Balk at Vital Reforms

Although current predictions suggest that oil- and gas-exporting states in Central Asia will cash in on energy price rises, Uzbekistan’s state-centred, isolationist economic policies mean it will remain vulnerable, an economic risk expert says.

In a regional forecast published in October, the International Monetary Fund said fuel price rises would benefit exporters, but inflation remained a significant risk.

NBCentralAsia asked Vyacheslav Zubenko, chief editor of Birzhevoy Lider, a web-based economic and investment risk journal, to comment on the direction in which the Uzbek economy is heading, and what possible measures the country’s government could take to cushion against external shocks.

NBCentralAsia: In an increasingly risky environment, what do you see as the main dangers to Uzbekistan?

Vyacheslav Zubenko: In Uzbekistan, government statistics are confidential, the som is not a convertible currency, there is a grey economy, inflation is rising and outstripping economic growth, the som is depreciating against the US dollar and other currencies, corruption is rife, and democratic freedoms are absent.

These factors lay the way for hyperinflation. In the first six months of 2011, the prices of basic foodstuffs like sugar and meat increased by 50 per cent. Yet the State Statistics Committee put the inflation rate as low as 3.6 per cent.

Our own estimates suggest that inflation was closer to 12 per cent over that period, and could reach 24 per cent by year end.

The authorities increased wages by 25 per cent, which only acts as a spur to inflation.

Uzbekistan remains a dark horse for the international community, a mysterious and unpredictable terra incognita.

Many analysts believe the Uzbek economy is quite dynamic, the financial system is robust, and gross domestic product is growing at record rates compared with other countries. The country coped with and successfully escaped from the global recession of 2008 and is in good shape to deal with further crisis. Furthermore, [they argue] Tashkent has a fairly independent foreign policy and can claim to regional leadership in Central Asia, competing well against Kazakstan.

But if this is the case, it is fair to ask how Tashkent has achieved results like this, and whether they are not in fact exaggerated.

Other economists discount the official statistics, and say the real figures – concealed by Tashkent – would shows Uzbekistan up as one of the weakest links in the global economy, along with the likes of Belarus, Greece and South Ossetia.

NBCentralAsia: In your view, what could the Uzbek authorities do to mitigate the risks they face?

Zubenko: The government of Uzbekistan should take three key measures. First, liberalise foreign trade and private enterprise; second, withdraw money from circulation down to a level concomitant with actual production of goods and services; and third, lift artificial currency controls.

Over the past year, the government has made administrative changes to improve the investment and economic climate, to strengthen the national currency and curb the grey economy. These include introducing electronic payment systems and an “asset amnesty”. The amnesty targeted two categories of people – the well-off, and migrant workers – who were given a chance to deposit cash savings in the banks, without fear of being questioned about the legality of these earnings. But the campaign failed in 2008 because people didn’t trust the government, and the result was that much of business activity remained in the grey economy.

In addition, the authorities remain reluctant to devalue the som, which leaves people having to carry their wages home in sackloads.

NBCentralAsia: With demand for cotton and other products, what export items can still generate revenue?

Zubenko: A second wave of global recession is going to result in falling international commodity prices. That will reduce expert revenues for raw material producers like Uzbekistan, which earned over 13 billion US dollars last year from sales of cotton, gold, natural gas, metals, mineral fertilisers, uranium and textiles.

Uzbekistan needs to implement a series of new policies to cut spending on the state apparatus, liberalise foreign economic activity, and cut import duties.

In an undemocratic society, the only way of pursuing reforms is from the top down. That has worked for “Asian tigers” like China, Singapore and Malaysia..

The Uzbek leadership with its powerful state institutions does not, however, wish to learn from their experience and put it into practice at home.

This article was produced as part of IWPR's News Briefing Central Asia output, funded by the National Endowment for Democracy.

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