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bne November 2017 Companies & Markets I 15
Uzbekistan seeks to buoy reform efforts with $1bn World Bank loan
Kanat Shaku in Almaty
The World Bank is holding discussions with Uzbekistan on the potential for the international financial institution (IFI) to support President Shavkat Mirziyoyev’s reforms aimed at opening up the country, it said on September 30. Media reports on September 29 said the Central Asian nation was planning to seek a $1bn World Bank loan.
The borrowing will be aimed at easing the economic and budgetary impacts of the Uzbek currency liberalisation on the Central Asian country’s economy and budget.
The government sharply devalued its official exchange rate on September 5 and allowed companies and citizens to trade the currency freely, removing the black market exchange rate, which has long hurt foreign investment in the country and caused double-digit inflation which remained hidden behind the unofficial dual-exchange rate mechanism.
Moody’s Investors Service said in September it expected at least five Uzbek banks to see a deterioration in credit qual-
ity due to the lifting of the strict currency controls. The govern- ment will likely need additional funds to provide support for such banks.
”We are working very closely with the government of Uzbeki- stan to support their ambitious reforms aimed at improving the lives of the Uzbek people. The details of our support are being discussed between the government and the World Bank,” a World Bank spokesman said on September 30.
Mirziyoyev, who is also showing signs of easing his country’s harsh attitudes to human rights in his approach to dissidents and to the use of forced labour in cotton picking, met World Bank president Jim Yong Kim at the United Nations General Assembly session in New York on September 20.
Natural destination for investors
IFIs may turn out to be keen to assist the newly reform-minded government. Uzbekistan is the natural destination of choice
for a would-be investor in Central Asia, given that it has by far the largest population (33mn people and growing fast) and is the only one of the former Soviet 'Stans that has a border with all the others. That makes it the obvious production and distri- bution centre for the whole region. Foreign investors flocked to the country in the early 1990s only to leave again when
“The high street banks quickly discovered Russky Standart was wiping the floor with them”
Islam Karimov, the iron-fisted autocrat who ruled Uzbekistan as president from 1990 to 2016, killed the ability to convert the currency.
The origins of the now two-track currency exchange rate
go back to the early 1990s when Uzbekistan saw a boom in private enterprise. As stores opened up across the country to fill the insatiable demand for imports, Karimov was horri- fied when he discovered his country was running a $1bn trade deficit.
“We are not going to waste our precious hard curren-
cy reserves on importing chewing gum,” Karimov announced in a famous speech, and went on to introduce the strict cur- rency conversion scheme. Dollars disappeared overnight, giving way to the dual exchange rate regime. Newly unable to repatriate profits in hard currency, the interest of foreign investors in Uzbekistan evaporated. Shops began closing and the elite, which did have access to dollars via the then newly established National Bank of Uzbekistan, began to take over the country’s most successful businesses.
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