A Country Report and Profile - Republic of Uzbekistan
A Country Report and Profile
Alfiya G. Mirzagalamova firstname.lastname@example.org
Jason C. Holman jholman@indinanaedu
Dmitri Maslitchenko email@example.com
The concept of transition of the Republic of
Uzbekistan to the market economy consists of five principles formulated by its
President Islam Karimov:
1. Economy should have priority over politics.
Economic reforms should not follow the lead of political processes.
2. The State is the main reformer. The representatives
of legally elected authorities have to determine priorities and pursue balanced
policy of no social shocks.
3. Along with economic reforms it is necessary to
create a system of social protection of the Republic population especially of
most vulnerable groups.
4. Superiority of Law and Constitution.
5. Stage by stage movement to the market economy. The
transition to next stage only after the current stage targets have been met..
I. Political and Economic Background
To understand the politics of Uzbekistan
it is important to delve into it=s
most recent history. The leader from 1959-1983 was Sharaf Rashidov, who ruled
in a quasi-feudal fashion, much like the newly elected leader. Rashidov kept
the USSR content through a combination of patronage, corruption, and repressive
behavior. Once Mikhail Gorbachev was elected, Rashidov was the prime target
for his drive to eliminate corruption. Although there was an upsurge of
national identity among the Uzbeks and a feeling of victimization by the
thousands of corrupt officials who where soon imprisoned, incredibly through
more repression the elections for new leaders would go unopposed. The
Republic of Uzbekistan declared its independence from the former Soviet Union
on August 31, 1991. Although it was not recognized by the United States until
December 25, 1992. Uzbekistan is a member of the United Nations and the
Commonwealth of Independent States (CIS). Although Glasnost led to many open
media discussions of the environment and ethnic issues, the elections held in
1990 were one-sided. The main opposition party was not allowed to stand,
therefore leaving many communist candidates to be elected. Islam Karimov was
first elected President in 1990 by the Supreme Soviet and later was reelected
by a popular vote in 1991.
In 1995 Karimov held a national
referendum which would extend his term into the year 2000. He had 99% of the
electorate=s support. Karimov proclaims he is a supporter of AEastern Democracy.@
He stresses the importance of stability of eastern democracy over it=s western counterpart. The stability that Karimov
suggests many believe is just a ploy for Karimov to use his dictatorship power
to cling to the old world status. Karimov is one of the strongest supporters
of continued cooperation among the Soviet Republics. Karimov supported the new
Union Treaty in spring of 1991 and did not oppose the August 1991 coup in
Moscow. Once the coup collapsed Uzbekistan declared independence. Karimov
proclaims Uzbekistan is a multiparty system, yet the Erk (Freedom) Democratic
Party, the Birlik (Unity) People=s
Movement (BPM) and the Islamic rebirth Party (IRP) have been banned.
Policy makers still remain suspicious of unregulated
market mechanisms, although Karimov officially commits to a market-oriented
reform. Prices were slowly liberalized and the new trade policies are less
harmful toward exports. The import tariffs proposed in 1993 are preferential
toward CIS communities and extra low tariffs toward Central Asian countries.
It is going to be very difficult for him to explain why many of the neighboring
Central Asian countries are becoming richer through liberalization and
privatization while Uzbekistan continues to stay stable, but poorer then the
other nations. Karimov stresses stability as a reason why Uzbekistan has not
seen the high inflation rates characteristic to other CIS communities in
2Karimov gives little mention to human rights. He
believes that economic stability is necessary for socio-political stability.
In his new book, Along the Road of Deepening Economic Reform, Karimov states, Apreparation, discussion and adoption of fundamental
laws regulating and providing guarantees of human rights and freedoms, rights
and freedoms of public organizations and freedom of conscience and religion
have been something principally new in practical law making in this country.@ He also briefly mentions the women=s rights and acknowledges their special role as Awomen-mothers@
and presses for better child care provisions.
3At independence, the economy was dominated by cotton
production. Uzbekistan hoped to benefit from this by selling the cotton on the
international market, but the early 1990s were a time of depressed prices on
world cotton markets. This created a dispute with Russia, which responded by
seeking to purchase cotton on the world market. Uzbekistan lost a considerable
amount of revenue due to this conflict with Russia. Eventually the two
countries reached an agreement to barter Uzbek cotton for Russian petroleum
Other important agricultural products
include grain, fruit, vegetables and natural silk from cocoons. The main
problem of Uzbekistan is that about three-fifths of the country is desert or
semi-arid desert: almost all cultivated land must be irrigated. This has
resulted in the gradual drying up of the Aral Sea. By the 90's the available
water supply had been exhausted to the point that there was no possibility of
increasing the amount of land used for agricultural purposes. Grain production
only covers a quarter of Uzbekistan=s
total consumption. Therefore Uzbekistan relies heavily on imports from
countries such as the United States to support their supply of grain.
Uzbekistan complains that the USSR destroyed it=s grain-growing capacity in order to create the cotton monoculture.
This has remained a very difficult obstacle for Uzbekistan and grain continues
to be a major import.
other primary product exports include gas and minerals. Uzbekistan has few
energy sources besides gas and untapped hydro power. Although a major oil
field was recently discovered in the Fergana Valley in 1992. Uzbekistan is the
largest importer of oil by all the CARs. The most accessible mineral export is
gold, of which Uzbekistan was the USSR=s
second-largest producer. Joint ventures are bringing foreign technology to
exploit Uzbekistan gold mines. Other mineral deposits include silver, lead,
copper, zinc, and tungsten. Uzbekistan=s
minerals have a low ore content, which suggests that it would not be as
valuable on the world market.
5After World War II, Soviet resources were concentrated
on rebuilding industrial enterprises in European areas. With less investment
the growth rate of Uzbekistans industry declined. There was a long trend of
falling industrial growth rates. Manufacturing industry in Uzbekistan was
originally developed in close relation to its primary product base which of
course was cotton and fruits and vegetables. Machinery for the cotton sector
was a major output and food processing industries were also important. These
are the only two substantial forms of manufacturing in Uzbekistan. This is
somewhat disturbing considering the large amounts of resources that are
6The general problem was of lack technical ability and
low standards of quality. The main approach to correct this problem was to
encourage joint ventures. Many joint venture agreements were signed in 1992
and 1993, but there was little actual foreign investment. There was also a
problem with Uzbekistan=s communication capabilities. In 1993 a joint venture
was formed with the Turkish company, Teletas, to install seventy
Uzbekistan also would like to become the
hub of Central Asia. When the Aeroflot fleet was shared out after the dismemberment
of the USSR, Uzbekistan utilized its share of the planes productively to earn
vast amounts of hard currency. It created an international network in the
spring of 1993 with the goal of making Tashkent a hub for budget and travel
between Europe and Asia. Flights would be established to Karachi, Delhi,
Kuala, Lumpur, Bangkok, Beijing, Frankfort, and London. Israel provided
training assistance to Uzbekistan Airways, and the airline raised its
credibility by purchasing several Airbuses.
Economic reform in Uzbekistan has been
very slow. Until 1994 Mr. Karimov opposed reform. Since then he has had to
start some reforms to obtain IMF backing for his stabilization program and to
get World Bank financing. Uzbekistan has been officially committed to economic
reform since independence. The government has favored gradual change, and the
pace has become increasingly slower as the years have went on. Labor market
and enterprise reform have been limited, and indeed the ultimate reason behind
Uzbekistans slow price liberalization has been to maintain the value of real
wages and subsidies. The government has promised to keep wage and benefit
increases ahead of future price rises.
7Privatization in Uzbekistan has progressed extremely
slow. Karimov dominates economic policy; he has issued a raft of decrees that
are on occasion contradictory, but aim to convince the multilateral
institutions that reform is taking place. The first form of privatization took
place in 1994. The process lacked transparency, was corrupt and resulted in Mr
Karimov=s allies owning the viable firms. Other obstacles are
that land liberalization ahead of establishing a guaranteed water supply would
be meaningless for the irrigation-based agricultural sector. In industry, not
only has privatization of state enterprises been slow but there was also very
little privatization created from many small-scale entrepreneurs.
8II. Budgetary and Monetary Conditions
Uzbekistan=s statistics are notoriously inaccurate and in small quantities. The government
views economic data as a state secret, and circulation of the more informative
data is restricted. All figures from Uzbekistan must be treated with a degree
of caution as the government is trying show that the country is handling the
post Soviet government better then its neighbors. The country is attempting to
switch from the old communist national accounting method using National
material product (NMP), which excludes most services and depreciation, to the
standard System of National Accounts (SNA).
What is clear is that Uzbekistan=s economy has been in decline since the collapse of
the Soviet Union. After a 3.7 % fall in 1991 National material product
declined by 14.4% in 1992. GDP in those two years has dropped by 0.5% and
11.1%. In 1993 the fall in GDP was 2.4 % according to IMF estimates, with
national material product down by 3.5% mainly due to continued government
subsidies. The IMP initially estimated that, due to tighter policies, GDP
contracted by 10.1% in 1994. However, the Uzbek authorities claim that despite
a severe credit crunch and a confiscatory change of currency, GDP shrank by
only 2.6%, the figure that the IMF now accepts.
9Net Material Product
1989 1990 1991 1992 1993
At current prices 21,588 23,402 49,636 386,071 3,686,800
Real Change ( %) 3.1 11.3 -3.7 -14.4 -3.5
Per Head (Rb)
At current prices 1,091 1,157 2,407 18,287 170,622
Real change (%) 0.8 8.9 -5.5 -16.4 -5.7
*Derived from the World Bank mid-year population
Uzbekistan=s government budget has suffered from large deficits since the collapse
of the Soviet Union. The IMF has put the 1993 fiscal deficit at 12% of GDP,
while the governments figure released through the World Bank was 2.5%. The
main reason for the deficits is lost revenue subsidies from the Soviet Union.
Uzbekistan had one of the largest subsidy share of revenue compared to many of
the other (CIS) countries. During the 1980s the proportion of revenue actually
increased form 20.8% in 1987 to 43.2% in 1990. Soviet grants which has once
accounted for 7% of GDP in 1987 rose to 19.5% of GDP by 1991.
10III. Expenditure Policies and Assignments
Although Uzbekistan is now engaged in
the necessary fiscal and revenue-raising reforms demanded by multilateral institutions,
very little revenue is received from taxes. Corruption, weak institutions,
economic recession and poor tax compliance have hindered revenue collection
severely. The government claims that actual revenue to GDP has risen in recent
years from 26.4% to 41%in 1993. Given continued state control of the economy,
tax compliance among state enterprises would tend to be greater than in
countries with a growing private sector, although figures may be overstated.
On the expenditure side, increased outlays on defense and security, welfare
payments, and subsidies to industry have been the most important developments
since 1991. Increased expenditure was financed through huge expansion of
domestic credit, montised by courtesy of the Russian Central Bank until 1993
when this tactical trend was eliminated once it was found to be unsustainable.
The government then went to the IMF. The figures on the preceding page show
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