Business & Economics:
UZBEKISTAN REFUFFS IMF ON ECONOMIC REFORMS
Rustam Temirov: 3/19/03

Uzbekistan is resisting fresh International Monetary Fund (IMF) pressure to implement long-promised reforms, even as leading economic indicators show the country’s economy is deteriorating. Political observers say Uzbekistan’s stubborn resistance to reform significantly raises the prospect of domestic instability.

An IMF team completed a two-week mission to Uzbekistan in late February. At the end of the trip, the mission head, Erik De Vrijer, revealed that Uzbek officials had effectively rejected an IMF appeal to honor previous commitments, in particular a pledge to implement currency reform. [For background see the EurasiaNet Business and Economics archive]. The inability to reach agreement means that the IMF is unlikely to resume cooperation with Uzbekistan in the foreseeable future.

"They [Uzbek authorities] are reluctant to surrender their control over economy and ensure genuine economic freedom," De Vrijer said. "The government seriously lacks knowledge and realism in assessment of the situation."

An economist familiar with the IMF-Uzbek discussions said fund representatives called on the Uzbek government to introduce a freely convertible currency and to liquidate unprofitable state-owned enterprises. Given Uzbekistan’s low living standards, high unemployment rates and other social problems, Uzbek officials balked at complying.

"Apparently, the reforms would call for significant expenditures," the economist said. "We [Uzbekistan] may not be ready for such expenditures. Plus, opposition to cooperation with the IMF may be supported by corrupt organizations and individuals."

Another source with knowledge of the government’s thinking suggested that officials are worried about the possible consequences of allowing a free float of the Uzbek currency, or som. Some apparently believe such a move could precipitate economic upheaval, citing as examples economic crises in Turkey, Mexico and Argentina. In all three cases, officials believe, economic collapse stemmed from government efforts to comply with strict IMF reform criteria.

"The IMF’s recommendations and schemes [concerning the] introduction of market economic principles may not always be applicable to our local specificity," says a source.

Tension between the IMF and Uzbekistan has been building since mid 2002. In June of last year, fund officials, upon completing an earlier mission, publicly praised Uzbek reform efforts while privately expressing concern that Tashkent was backing away from currency convertibility. [For background see the EurasiaNet Business and Economics archive].

In recent months, Tashkent has erected trade barriers that have drastically curtailed commerce between Uzbekistan and neighboring states. [For background see the EurasiaNet Business and Economics archives]. The high tariffs have resulted in a significant drop in domestic economic activity. But according to De Vrijer, Uzbek authorities do not feel inclined to alter the existing policy.

An indicator of the rupture between Uzbekistan and the IMF was the abrupt cancellation on February 28 of a news conference. A major factor behind the cancellation, according to an informed source, was the desire of Uzbek leaders to prevent IMF criticism from being broadly disseminated by domestic media. State-run media widely reported the arrival of the IMF mission, but Uzbek newspapers and television carried virtually no information about the results of the visit.

De Vrijer acknowledged that Uzbekistan has made limited reform progress in some spheres. For example, Uzbekistan has reduced its debt burden from $4.9 billion at the end of 2000 to $4.36 billion in 2002. Nevertheless, the overall economic picture is grim. GDP has dropped from $400 per capita in 1998 to $300 per capita in 2002. Over the same period, wages have fallen nearly 50 percent, with the average monthly salary now standing at $29. Meanwhile, inflation held steady in 2002 at roughly 30 percent. The Uzbek government puts inflation at 22 percent.

In tightening government control, Karimov appears to be betting that force is the best strategy for containing popular discontent over stagnant living conditions. But many foreign analysts contend that current economic trends are untenable, and are likely to do more to fuel, rather than prevent, popular unrest. [For background see the EurasiaNet Human Rights archive]. Some analysts believe that developments in recent months, especially the significant deterioration of economic conditions, have turned Karimov’s administration into the shakiest government in Central Asia.

"Not to long ago, most people believed that [Kyrgyz President Askar] Akayev might be the first Central Asian dictator to go. But I’ve got to say that, with the way things are going in Uzbekistan, Karimov may have moved into the lead," said one US-based political observer, speaking on background.

Other analysts say that Uzbek officials may be counting on strategic cooperation with the United States to help Tashkent solve its economic dilemma without the introduction of painful reforms. Karimov has been Central Asia’s staunchest supporter of the Bush administration’s Iraq policy.

"If there are programs to develop chemical, biological and bacteriological weapons in Iraq, and they are not stopped in time, tomorrow these weapons will fall into the hands of terrorists and religious extremists," Karimov said at a March 6 news conference. "Then, believe me, the whole world will tackle this problem, but it will be too late, and the situation will be uncontrollable."

US President George W. Bush has already indicated that Karimov’s support will be rewarded. According to a March 18 report by the Interfax news agency, Karimov received a thank-you letter from Bush. "Bush thanked the Uzbek president and government for their support in the global struggle against terrorism," the Interfax report said. "The US president said that his country will always remember those who supported it."

Editor’s Note: Rustam Temirov is the pseudonym of an independent journalist in Uzbekistan.