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Eurasia
August 4, 2017 www.intellinews.com I Page 20
Dismantling Karimov’s legacy in Uzbekistan
bne IntelliNews
Since Uzbekistan’s new president came to power in September, Shavkat Mirziyoyev’s regime has put forth a multitude of promises in areas rang- ing from human rights to improvements for small businesses. The most significant of these was the announcement that Tashkent would initiate cur- rency liberalisation reforms and abolish the black market exchange rate, further chipping away at the legacy left by the late Islam Karimov.
The origins of the dual rate exchange system, which currently sees the Uzbek sum trading at around UZS4,000 to the dollar at the official rate and UZS8,000-9,000 at the bourse and black market rates, go back to the early 1990s, when the Central Asian nation saw a boom in private enterprise. As stores opened up across Central Asia’s most populated country to fill the insatiable demand for imports, Karimov was horrified when he discovered his country ran a $1bn trade deficit.
“We are not going to waste our precious hard currency reserves on importing chewing gum,” Karimov announced in a famous speech, and went on to introduce the strict currency conversion scheme. Dollars disappeared overnight, giving way to the dual exchange rate regime. 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 coun- try’s most successful businesses.
To this day, the exchange rate regime still stifles foreign investment, so it was welcome news when Uzbek state-run media announced in July that
commercial banks have been granted access to the market rate of the sum. A Reuters report from the same month did, however, suggest this rule only applied to a limited number of commercial banks and companies.
In two consecutive visits to the country in the same month, International Monetary Fund (IMF) officials welcomed the upcoming changes and pledged to provide support.
One of the key challenges standing in Uzbeki- stan’s way is the threatened impact of inflation on existing Uzbek businesses following the adoption of a floating exchange rate regime. To address this, the country announced in July its previously unreported gold and foreign currency reserves, and the government pledged to support Uzbek businesses as they adjust to new conditions.
“Given Uzbekistan’s ample foreign exchange reserves, the reform can be implemented from a position of strength,” the IMF said on July 24. The gold and foreign exchange reserves were later revealed to stand at $20bn – enough to cover two years of imports.
Before the country can proceed, however, it needs to solve the issue of existing double-digit inflation created by the black market currency. Despite official figures reporting annual consumer price hikes of 5-7%, independent press and economic reports from 2016 have suggested a rate running between 20% and 30% a year.
To curtail unreported double-digit inflation, the Central Bank of Uzbekistan has decided to in-