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Uzbekistan
Structural and Legal Reform
From the time of independence, Uzbekistan's political leaders
have made verbal commitments to developing a market-based economy,
but they have proceeded cautiously in that direction. The first
few years were characterized mainly by false starts that left
little fundamental change. The initial stages of reform, instituted
in 1992, were partial price liberalization, unification of foreign-exchange
markets, new taxes, removal of import tariffs, and privatization
of small shops and residential housing. Laws passed in 1992 provided
for property and land ownership, banking, and privatization. Modernization
of the tax system began in 1992; the first steps were a value-added
tax (VAT--see Glossary) and a profits tax designed to replace
income from the tax structure of the Soviet period.
In its first effort at price liberalization in 1992 and 1993,
the government maintained some control on all prices and full
control on the prices of basic consumer goods and energy. A wide
range of legislation set new conditions for property and land
ownership, banking, and privatization--fundamental conditions
for establishing a market economy--but in general these provisions
were limited, and they often were not enforced. International
financial institutions initially were encouraged to believe that
structural adjustments would be made in the national economy to
accommodate international investment, but later such promises
were rescinded. In 1994 the government maintained control of levels
of production, investment, and trade, just as Moscow had done
in the Soviet era. Several agencies, most notably the State Committee
for Forecasting and Statistics, the State Association for Contracts
and Trade, the Ministry of Foreign Economic Relations, and the
Ministry of Finance, inherited responsibility for planning, finance,
procurement, and distribution from the Soviet central state system.
Economic policy making remains based on a national economic plan
that sets production and consumption targets. State-owned enterprises
remain in virtually all sectors of the economy. In 1994 no laws
had established standards for bankruptcy, collateral, or contracts.
But by 1995 Uzbekistan had made some significant movement toward
reform, which experts interpreted as a possible harbinger of wider-ranging
changes in the second half of the decade.
Privatization
Privatization of the large state industrial and agricultural
enterprises, which dominated the economy in the Soviet era, proceeded
very slowly in the early 1990s. The initial stage of privatization,
which began in September 1992, targeted the housing, retail trade
and services, and light industry sectors to promote the supply
of consumer goods.
Beginning with the 1991 Law on Privatization, a number of laws
and decrees have provided the policy framework for further privatization.
A state privatization agency, established in 1992, set a goal
of moving 10 to 15 percent of state economic assets into private
hands by the end of 1993. Movement in that direction was slow
in 1992, however, with only about 350 small shops being privatized.
In the same period, housing was privatized at a somewhat faster
pace by outright transfers or low-cost sales of state housing
properties. By 1994 about 20,000 firms in small industry, trade,
and services had been transferred from state ownership to the
ownership of managers and employees of the firms. Nearly all such
transfers were through the issuance of joint-stock shares or by
direct sale.
Agricultural privatization, which began in 1990, has moved faster.
Since the state began distributing free parcels of land that could
be inherited but not sold, the number of peasant farms has risen
dramatically (cotton-growing lands were excluded from this process).
Between January 1991 and April 1993, the number of private farms
rose from 1,358 to 5,800, promising a significant new contribution
from private farms to Uzbekistan's overall agricultural output
(see Agriculture, this ch.). Another government program, initiated
in 1993, transfers unprofitable state farms to cooperative ownership.
A law permitting the transfer of privately owned land was planned
for 1995.
In the mid-1990s, the role of the state was gradually reduced
in the productive sectors, except for energy, public utilities,
and gold. The government's privatization program for 1994-95 emphasized
the sale of large and medium-sized state-owned construction, manufacturing,
and transportation enterprises. A set of guidelines for large-scale
privatization, which went into effect in March 1994, contained
several contradictory provisions that required clarification,
and privatization also was slowed by the need to change the monopoly
structure of state-owned enterprises before sale.
In mid-1995, the government reported that 69 percent of enterprises
(46,900 of 67,700) had been privatized. Most firms in that category
are relatively small, however, and all heavy industry remained
in state ownership at that stage. Although the government has
promised accelerated privatization of larger firms, experts did
not expect the slow pace to improve in the late 1990s.
Currency Reform
According to some experts, a turning point came in late 1993
after Uzbekistan and Kazakstan were expelled from the ruble zone
(see Glossary), in which Uzbekistan had remained with vague plans
to adopt an independent national currency at some time in the
future. Following the example of Kyrgyzstan, which already had
created its own currency the previous May, in November 1993 Uzbekistan
issued an interim som coupon. The permanent currency unit, the
som, went into effect in the summer of 1994 (for value of the
som--see Glossary). The introduction of the som was followed by
an improving domestic economic situation, including some progress
toward economic stabilization and structural reform. Beginning
in late 1994, the national economy achieved substantial price
liberalization, a reduction in subsidies, elimination of state
orders on most commodities, and some freeing of state controls
in the agricultural sector. In 1994 the som was one of the weaker
new currencies in Central Asia; it lost two-thirds of its value
in the second half of 1994. By the end of the year, however, inflation
had leveled off, and the free-market exchange rate of the som
stabilized by January 1995. In July 1995, the government announced
plans to make the som fully convertible by the end of the year.
At the beginning of 1996, the som's value was thirty-six to US$1.
Data as of March 1996
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