Uzbekistan Unveils Ambitious Plan to Liberalize Currency Market
A draft presidential decree in Uzbekistan posted on a government portal on November 28 has laid out plans to liberalize the currency market, an apparent fresh step in acting President Shavkat Mirziyoyev’s mission to improve investment conditions and kick-start the moribund economy.
The draft has been posted online and internet users are being invited to offer suggestions and modifications before December 14.
In its current form, the decree proposes major financial reforms to “further liberalize and improve monetary policy, develop and increase the efficiency of the domestic foreign exchange market and improve conditions for the foreign transactions of enterprises.”
The US Department of Commerce details the plight endured by companies forced to navigate Uzbekistan’s onerous foreign currency rules.
“All legal entities, including those with foreign investments, must receive special permission from the Central Bank to access foreign currency. Officially, it is a routine procedure, but in reality an applicant must go through many layers of bureaucracy, which entails extensive time and effort. Moreover, the government regularly issues classified instructions telling banks which transactions requiring currency exchange are allowed, and which are not,” the website export.gov explains.
The government says it will level the playing field for companies operating in foreign currency and halt the practice of providing loans and preferential conditions to some companies over others.
Authorities also propose to allow the exchange rate to float in line with market mechanisms, while preventing legislation that could negatively affect the stability of the national currency, the Uzbek sum.
In a provision of particular interest to regular citizens is the proposal to revoke restrictions on people moving sums of money equivalent to less than $10,000 in and out of the country. Anything under $2,000 would not be subject to declaration. Currently, all money, regardless of the amount, must be declared at the border.
Exporters will be mostly freed of the requirement to sell all their foreign currency revenues at Central Bank rates — which are markedly lower than those on the black market.
One important provision in the decree requires the development of a system to properly assess the market value of the sum against foreign currencies. This might sound obvious, but this goal has eluded the government for the best part of a quarter of a century.
With this proposed raft of reforms, Mirziyoyev is taking aim at one of Uzbekistan’s holiest of holies — the underground money exchange market, a huge business widely said to be controlled by influential elite insiders and people close to the country’s security structures.
The import-export market in Uzbekistan is in effect controlled by the small group of people that maintain control over the currency black market. Exploiting the spread between the two rates — official and black market — these informal business operators are able to command phenomenal rates of commission. Whether the best intentions of reformers will be enough to defy the black marketeers remains to be seen. More likely than not, it will rely in great part on whether the highest echelons of the National Security Service, or SNB, the successor agency to the KGB, are onboard.
Tashkent-based political economist Rafael Sattarov told EurasiaNet.org he is confident there will be a turn for the better.
“The country is in a state of deep stagnation. It needs investment and a reset of the system. No normal producer is going to invest in this kind of economic model, and as a result, the authorities need to initiative convertibility and liberalization of currency operations. With this, the sum will lose its value and we will a Zimbabwe-style impact on the economy,” Sattarov told EurasiaNet.org.