One more attempt to revive wholesale and exchange-based trade in Uzbekistan

At the end of April 2001 the President of Uzbekistan issued a Decree «On Measures to further improve wholesale and exchange-based trade» ("Narodnoe slovo", April 28, 2001). The document says that the existing system of wholesale and exchange-based trade in Uzbekistan «remains ineffective» since the sales of finished goods and raw materials through the exchange is negligible. «Dealing is still predominantly governed by the old faulty principles of command, when material resources are distributed beforehand between sellers and consumers. Many exchange deals are actually made over the counter, rather than on the dealing floor of the exchanges. Competition and freedom of choice are actually nonexistent.» This quote essentially states the fact that the country does not have even a faint resemblance of the exchange-based trade, therefore, the flow of raw materials and goods continues to be steered by the will of certain authorities, and this kind of distribution has nothing to do with market mechanisms.

According to the usual custom, a party to blame has been identified. It was the republican joint-stock association of the wholesale and exchange-based trade «UzOptBirzheTorg», whose operation was severely criticized in the Decree and deemed unsatisfactory. The Decree approved findings of the Special Commission based on the analysis of the «UzOptBirzheTorg» operations, and liquidated the association as a legal entity. Meanwhile, a joint-stock company «UzUlgurjiSavdo» is to be created on the basis of republican wholesale trade organizations which used to be part of the «UzOptBirzheTorg» association.

The new company will be charged with the duty of providing wholesale trade and warehouse services to organizations and enterprises requesting and ordering such services. Territorial joint-stock trade intermediary companies which used to be part of the former association, will now function under the responsibility of the Council of Ministers of Karakalpakstan and oblast khokimiyats. Naturally, they will perform the same functions as those of the newly created company. Another important item of the Decree is the separation of the Uzbek Republican commodity exchange from the liquidated «UzOptBirzheTorg» association and the recognition of this exchange as «independent market entity».

The «UzOptBirzheTorg» association abolished by the Decree was once established by another Presidential Decree dated February 28, 1994 ("Narodnoe slovo", March 1, 1994) to replace the state joint-stock association for contracts and trade «UzKontraktTorg», and thus has existed for more than seven years. Apparently, there had been serious grounds to abolish the «UzKontraktTorg»: for instance, one of the government [Cabinet of Ministers] resolutions noted that during the sales of the 1992 and 1993 cotton crop «numerous cases of fraud were discovered, when bribes were received at the expense of price discounts» ("Narodnoe slovo", October 23, 1993). The responsibility for that fell partly upon the «UzKontraktTorg» whose job was to supervise sales of cotton as «raw material strategically important» for Uzbekistan. The resolution of 1993 also noted that the most valuable cotton yarn was traded against «goods and resources of secondary importance», and during the exchange the equivalence was not always observed either (Ibid.).

In other words, by early 1994 it became evident that the «UzKontraktTorg» was extremely clumsy and unfit to operate in the market environment, and, on top of all, infected with thriving corruption. Therefore, the abolition of the association appeared quite logical. The new «UzOptBirzheTorg» association comprised:

• The republican joint-stock commodity exchange;
• The joint-stock exchange bank;
• Territorial joint-stock trade intermediary companies.

The new establishment was supposed to revive wholesale and exchange market of Uzbekistan by providing equal access to goods and raw materials to all participants of the exchange-based trade. But as usual, while the government used its right hand to sign a resolution boosting wholesale and exchange market, at the same time its left hand introduced quota for «strategically important goods and raw materials». Thus, in the fall of 1995 the Cabinet of Ministers ruled that «all kinds of goods and products can be traded at exchanges and fairs, except those subject to quota» ("Narodnoe slovo", September 27, 1995). The list of goods under quota was rather long and largely consisted of what could be of real interest to potential wholesale buyers. Whereas items not subject to quota did not cause such interest.

The aspiration of the Uzbek government to retain control over strategically important sectors (mainly gold mining and cotton production and sales) was quite understandable in view of planned modernization of economy and ambitious plans to turn Uzbekistan into «a new Asian tiger» like South Korea or Taiwan. To remain in control would allow the government to use foreign exchange revenues for the purposes of modernization (for example, to provide government support to the UzDAEWOO automobile factory in Ferghana valley).

However, the maintained quota system provided favorable environment for corruption to grow and besides, it seriously hindered the development of large-scale wholesale trade which could potentially bring major flow of raw material and goods into the country. These obstacles, apparently, are the key reason why nobody brings into the country sufficient quantities of goods so badly needed by the population. It was no accident that in keeping with the government resolution «On Measures to streamline imports and sales of socially important food products» they established a specialized state joint-stock company «UzOzikOvkatTa’minot» ("Narodnoe slovo", August 16, 2000), whose job was to «secure the supply of sugar, vegetable oil and other socially important foods for the population and public needs».

To reanimate wholesale trade they also created permanently functioning republican fair center «UzKurgazmaSavdo» ("Narodnoe slovo", September 6, 2000), which, however, cannot operate adequately in the environment where trade is restricted by numerous sales quotas. And then finally arrives the Decree mentioned at the top of this review, in which the Uzbek government essentially admits that all its previous endeavors to organize an proper system for the wholesale exchange-based trade ended in failure. How successful this new effort will be and what findings will be drawn from the new experience, will soon become known