Resource-rich Uzbekistan struggling to overcome financial woes

Empowering Weak & Oppressed

Zafar Bangash

Dhu al-Qa'dah 23, 1417 1997-04-01


by Zafar Bangash (World, Crescent International Vol. 26, No. 3, Dhu al-Qa'dah, 1417)

Like its neighbours Kazakhstan and Turkmenstan, Uzbekistan, too, hopes to kick-start its economy with the development of fuel and energy sectors. Unlike the others, however, Uzbekistan is not endowed with vast oil and gas reserves even if it has great agricultural potential.

Its soil has been poisoned by excessive use of pesticides and fertilisers to boost the production of cotton during the Soviet era. Last year, even this major foreign exchange earner did not meet production targets. Its trade surplus of $200 million in 1995 turned into a deficit of $229 million last year due to a poor harvest of cotton.

Uzbekistan has great potential if its resources are properly managed. The rulers in Tashkent also know this although they are unable to take the steps that are necessary to allow its economy to flourish. Old habits, it is said, die hard. Uzbekistan is no exception. In fact, its rulers are not thinking of mending their ways.

President Islam Karimov, despite his name, is an old time communist apparatchuk. Even his conversion to Uzbek nationalism, though no help in building the shattered economy, had come as an afterthought when the Soviet Union collapsed in 1991. His nationalism is simply a cover of convenience.

Politics aside, Karimov has realised that the economy must be put right if his regime is to survive. Mother Russia, itself reeling from corruption, mismanagement and rule of the mafia, cannot breast-feed its colonies in Central Asia anymore. Nor can Moscow offer financial support to its puppets.

In Uzbekistan, there is little pressure from the opposition whom Karimov has crushed with an iron-fist but all this could change. Political opponents have a way of finding opportunities to exploit people’s grievances especially if they are genuine. Karimov’s intelligence and security agencies continue to operate in the manner of the Soviet era. Opponents simply disappear or are mysteriously killed. Even so, the economy’s lacklustre performance could undermine his government.

It has not been doing too well. Its gross domestic product (GDP) shrank by 1.2 percent in 1995. Last year it achieved a modest growth rate of 1.6 percent. Inflation, targeted for 40 percent, registered a 64 percent increase last year. Undeterred, finance minister Bakhtiyar Khamidov said that he would keep inflation down to 22 to 24 percent and that the 1997 budget would achieve a five percent GDP growth. He based this rosy assessment on boosting industrial output by 3.5 percent, and agricultural production by 8.5 percent.

‘Economic growth will take place thanks to the development of the fuel and energy sector, mining, automobile and aircraft industries, as well as higher output of food and consumer goods,’ Khamidov told an economic forum at the end of January. Ministers have a habit of painting a rosy picture. They always see light at the end of the tunnel even if it is a speeding freight train.

The International Monetary Fund (IMF) and World Bank which are starting to assert influence in the Central Asian State, are not so sure about Uzbekistan’s economic prospects. The IMF in particular criticised the government for its inconsistent monetary policy and slow liberalisation of the financial sector. And to show its displeasure, last year the IMF suspended disbursements of its $185 million stand-by loan due to curbs imposed by the authorities on the foreign exchange mechanism and above-target inflation.

An IMF team visited Tashkent earlier this year for discussions on the government’s economic policy for the current year and to decide whether suspended payments within the stand-by arrangement should be resumed. Defending the government’s policies, finance minister Khamidov said: ‘Taking into account the experience of other countries of the Commonwealth of Independent States, we should be cautious in reforming our financial sector.’ He went on: ‘One should judge reforms by their final results, not by their tempo.’ He added that last year the volume of currency transactions on exchange and over-the-counter markets was $3.7 billion and was likely to rise 20-30 percent this year.

The government hopes that Uzbekistan will swing back into a foreign trade surplus this year. Khamidov said resource-rich Uzbekistan had stopped imports of oil products and started exporting them last year. Imports of grain fell last year to 1.6 million tonnes from 3.3-3.5 million tonnes in previous years.

He said the budget deficit was kept last year within a moderate 3.3 percent of GDP. But 2.2 percentage points of that was covered by printing money, which fuelled inflation. Uzbekistan needs to do a lot more than simply print money to overcome its financial woes.

Muslimedia - April 1-15, 1997

Related Articles

Analyzing the Politics of Central Asia

Akhmet Makhmoudov
Jumada' al-Akhirah 24, 1440 2019-03-01

Sudan becomes an oil exporter, despite US opposition

M.A. Shaikh
Jumada' al-Akhirah 06, 1420 1999-09-16
Privacy Policy  |  Terms of Use
Copyrights © 1436 AH
Sign In
Forgot Password?
Not a Member? Signup