Notes from the Field: Uzbekistan (Part 2 of 3)


Reforms in Uzbekistan have largely failed to materialize, despite 4-5 presidential decrees on the economy. Part of the reason for this relates to coordination failures within government agencies related to the economy, and because laws seem to be implemented when convenient for the government and otherwise ignored. For example, although legislation has reduced the frequency by which regulatory agencies are allowed to conduct inspections, this has had little positive practical impact on business that cannot understand the tax code. In the customs ministry, tariff exemptions have been made for some products, however customs officials continue to hold these products at the border for months, even though they have no such right. Furthermore, the government is afraid of a currency devaluation and seeks to control it by pegging to the dollar. The new exchange conversion makes little practical sense, since the government’s conversion chart depends in reality on supply and demand for cash. The irony, however, is that a George Soros-style currency attack would yield much profit anyway, so pegging to the dollar may not be so dangerous.

Many people I talked to identified the banking sector as one of Uzbekistan’s most glaring economic problems. Uzbekistan’s two largest banks were supposed to be privatized in 2001, however, the government was asking about 6 times the EBRD estimated value. Today there is talk again about privatizing the banking sector. However, most observers believe that ASAKA and the National Bank have little capacity to conduct business at an international standard, therefore, purchasing such a bank would be like purchasing an empty shell.

Even if banks do restructure, it is unclear whether SMEs will feel the impact. Currently, the only way for most small entrepreneurs to get a loan is through microcredit. Several NGOs offer microcredit services at a rate of 60% annual interest, paid back at 5% per month. Interest rates from government banks are lower, at about 36% annually, however, only established businesses can qualify for these loans, unless a larger business provides a guarantee. In reality, only large and well established businesses can qualify for these government loans, leaving SMEs with little option but to pay the high interest of microcredit programs designed to help rural people rise above the poverty line.