Tashkent is reportedly restricting access to dollars for the business community, in the latest development to suggest that Uzbekistan’s government is facing a liquidity crisis.
The National Bank of Uzbekistan has “halted all convertibility operations for an unspecified period,” the Tashkent-based Uzmetronom.com website reported May 20, citing “information from reliable sources.” There was no confirmation on the website of the central bank, which EurasiaNet.org could not reach for comment.
These are the operations through which foreign and domestic companies convert their revenues earned in Uzbekistani sums into dollars, to repatriate earnings and pay for imports.
“Thus foreign investors and local entrepreneurs who depend on supplies from abroad (raw materials, parts, equipment and so on), who could still recently count on at least minimal levels of profit conversion within the limits of the quotas set for them, are now deprived of this opportunity,” remarked Uzmetronom.com (an unusually outspoken website which is believed to be close to Uzbekistan’s security services).
Investors regularly cite convertibility of sums into foreign currency and repatriation of revenues as the main barriers to doing business in Uzbekistan. Privately, businessmen report delays stretching into months to obtain permission from the central bank to convert sums to dollars, during which time they cannot access the funds since they are held in zero-interest accounts at the National Bank.
If confirmed, the suspension of currency conversion would be the latest indication that Tashkent is suffering from a shortage of dollar liquidity as it struggles under exchange rate pressures, caused in part by the depreciation of the Russian ruble (which has hit currencies across the region).
Uzbekistan’s currency is sliding on the black market, where the dollar-sum rate is volatile following last week’s presidential election.
The black market rate hit a record high of 4,700 sums to the dollar on April 2, the Uzmetronom website reported.
It has since fallen back and was trading at 4,220-4,270 on April 6, a source in Tashkent told EurasiaNet.org. The sum has thus lost between 5 and 7 percent of its value since the presidential election on March 29, when it was trading at 4,000-4,100 to the dollar.
The divergence between the official and black market exchange rates has grown exponentially in recent weeks: Traditionally, the sum has traded for around one-third more on the black market, but the gap is now around 66 percent. The National Bank of Uzbekistan is selling dollars for 2,540 sum, according to its website.
One possible explanation for the sum’s decline is that it is mirroring the trajectory of Russia’s ruble, which has caused currencies across Central Asia to plunge in value. A drop in remittances sent home by labor migrants in Russia owing to the economic crisis there is another possible reason: Remittances from Russia to Uzbekistan fell by 15.5 percent last year, according to data recently released by Russia’s Central Bank, which means fewer dollars circulating in the economy.
Uzmetronom speculated that the currency was just settling at its real market value, and predicted that the rate could hit new highs of 5,000-5,500 sums to the dollar by summer.
The Barakholka market in Almaty has been hit by four fires in the last three months, kindling suspicion that one of Central Asia’s largest bazaars is falling victim to turf wars.
A sprawling market in Kazakhstan’s commercial capital, Almaty, has caught fire for the fourth time in just three months. The blazes are kindling suspicion that the lucrative trade at one of Central Asia’s largest bazaars is falling victim to turf wars.
The fire at Barakholka – where an estimated 180,000 people work in 74 adjacent markets – started early on December 12, Tengri News quoted the Emergencies Ministry as saying.
This blaze follows a fire in September and two in November. They were preceded by another fire at a nearby market, Ushkonyr-7, in August. No one has died in the conflagrations, though several people have been injured.
It doesn’t suggest confidence in a currency when a prominent company refuses to accept it. That’s especially true when the company is owned by the same folks printing the money.
Uzbekistan Airways, the Central Asian country’s state-run flag carrier, reportedly plans to limit the number of tickets it sells in exchange for Uzbekistan’s national currency, the sum.
The airline will adopt quotas to limit its intake of the hapless Uzbek sum from July 1, report Uzmetronom.com and Fergana News. Under the new rules, only World War Two veterans, some disabled, some business travelers, and those attending the funerals of immediate relatives may continue to purchase tickets for sums, Uzmetronom – a site believed to be used to distribute leaks from Uzbekistan's security services – reported June 7.
"All other citizens will have to buy tickets in US dollars,” Uzmetronom said. Cash only, it added.
Moscow-based Fergana News notes that the airline stopped accepting sums for trips originating outside of Uzbekistan in August 2011.
Anyone holding a sack full of sums won’t be surprised. Authorities have long failed to eliminate the black market for the currency. Dollars are currently exchanging hands at about 2,750 sums each, while the official exchange rate stands at 2,085 sums to the dollar. Even at official rates, though, it is difficult to get any bank to part with its dollars.
Elite police units in Tashkent have started rounding up and arresting black market currency dealers days after new restrictions on the circulation of foreign currency came into force, according to witnesses and media reports.
Russia's RIA Novosti news agency quotes a law-enforcement official as saying that authorities are trying to prevent the exchange rate of Uzbekistan’s national currency, the sum, from plummeting against hard currencies.
"Since it is now impossible to purchase foreign currency in cash and there is a shortage, foreign currency has sharply gone up [in value] against the local sum, and authorities have decided to eliminate everywhere the so-called 'black [market]' dealers from whom in most cases the population and business buy foreign currency," RIA Novosti cites its source as saying. "The idea is that if there are no dealers, there won't be the possibility of selling and buying foreign currency; therefore, there won't be demand and foreign currency won't grow [in value]."
Sources in Tashkent have confirmed to EurasiaNet.org that elite Interior Ministry OMON troops have indeed raided major markets in the capital, sweeping areas where black market currency dealers operate, including the Sergeli car market. For practical reasons, major items such as apartments and cars are often traded for dollars: The Uzbek sum equivalent of a few thousand dollars is so bulky that it must be transported in garbage bags or suitcases.
OMON units wearing black balaclavas detained about 20 people, including women, in a raid on the Chorsu Market in Tashkent's old town on February 1, an eyewitness told EurasiaNet.org. The suspects were put onto a bus and driven away.
Uzbek President Islam Karimov has labeled 2013 the “Year of Prosperity and Wellbeing.” Starting today, prosperity is best measured in bricks of small-denomination Uzbek sums.
The streets of Uzbekistan’s cities have long been home to a thriving black market cash exchange, where dollars are worth approximately 40 percent more than in banks. Unsurprisingly, that’s kept hard currency out of the hands of central bankers.
Uzbekistan's Central Bank says it is moving to "improve" regulations regarding the sale of hard currency by making it basically impossible to buy dollars, euros and the like, starting February 1. Its new protocols are based on a "thorough" study of local and foreign practices, the Bank says.
Previously, any adult Uzbek citizen had the right – theoretically – to purchase foreign cash of up to $2,000 in value per quarter at the official exchange rate. To ensure no one got more than his or her fair share, the bank made notes in each citizen’s passport with details of the transaction, including the date.
Because it is so much more valuable outside on the street, the hard currency was in high demand. So the banks rarely had enough cash for more than a few customers per day. Late on January 31 in Tashkent, for example, commercial banks were advertising dollars at 2,038 sums (advertising, not necessarily selling), while the black market rate was about 2,800 sums to the dollar. (The highest-denomination sum note is 1,000, meaning stacks of bricks are required for many purchases.)
The substantive rate difference spawned all sorts of schemes, your correspondent can attest. At many banks women (at least it always seemed to be gangs of women) would queue from early in the morning, intimidating, with the help of police and bank security, any one else trying to buy dollars. Those dollars, most Tashkent residents believe, quickly ended up on the black market.