Tuesday, 10 April 2018 15:02

The Economic Modernization of Uzbekistan

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1804-Tsereteli-CoverBy Mamuka Tsereteli

 

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Executive Summary

 

When Shavkat Mirziyoyev succeeded Islam Karimov as President of Uzbekistan, many observers expected his tenure to represent continuity rather than change.  And while continuity is present in terms of the focus on independence and sovereignty of Uzbekistan, Mirziyoyev also showed a pro-active desire to improve foreign relations and initiate major economic reforms, designed to strengthen the strategic position of Uzbekistan. 

Mirziyoyev inherited an economic structure left behind by his predecessor, who consistently emphasized that his approach to economic change had been based on gradualism.  The Uzbek government was cautious; but it was not opposed to change. Small-scale privatization was quickly implemented after independence, based on an appeal to a tradition of family homes and small businesses. In the 1990s, the Uzbek economy benefitted from an abundance of cotton, which was relatively easy to bring to world markets at prices that were buoyant at the time. The state’s marketing monopoly ensured that a substantial share of the higher cotton revenues went to the government, which, as a result, was able to maintain social services better than other Central Asian countries. By some measures, Uzbekistan was the best-performing of all Soviet successor states in the 1990s, despite its rejection of the rapid reforms recommended by International Financial Institutions: by the end of the decade it was the first Soviet successor state to regain its pre-1991 real GDP level.

However, falling cotton prices in 1996 led the government to abandon its commitment to make the currency convertible and instead introduce strict exchange controls. When global demand dipped a decade later, the government again tightened forex controls, leading to the emergence of a substantial black market. Very much as a result of this multiple exchange rate economy, Uzbekistan also failed to further diversify its economy. Also, Uzbekistan’s borders remained tightly controlled, both for reasons of security and to protect import-competing industries.

Governance inefficiency became one of the major societal challenges for growth and development in Uzbekistan, contributing to many illnesses of the Uzbek economy, including unemployment. As a result, several million migrants were forced to move abroad, primarily to Russia, in search of work.  By the 2010s, Uzbekistan’s social policies – once a source of pride – were perceived to be deteriorating. 

Despite many shortfalls, Uzbekistan by the end of 2016, remained an economically stable country, but with the need to transform in order to meet the challenges it was facing. It was from this position of stability, but also a sense of urgency, that the newly elected president Mirziyoyev started implementing reforms. President Mirziyoyev had a very good idea where to start, since some of these reforms were designed during his tenure as Prime Minister, and they only required political will to be implemented.  On October 5, 2016, Mirziyoyev signed the decree "On Additional Measures to Ensure the Accelerated Development of Entrepreneurship, the Full Protection of Private Property, and the Qualitative Improvement of the Business Environment." This initiative sent a clear signal as to his priorities: an understanding that the private sector will be the key driver for economic growth and job creation in Uzbekistan going forward.

In February 2017, Uzbekistan adopted a 2017-2021 National Development Strategy, which identified five priority areas: 1) Reform of public administration; 2) Reform of the judiciary, strengthening the rule of law and parliamentary reform; 3) Reforms in economic development and liberalization, focusing on modernization of Uzbek agriculture and industry and oriented towards greater competitiveness of the products and services;  4) Social reforms, based on higher incomes and better jobs, oriented on higher quality health care, education, housing etc. 5) Reforms in the security area, focusing on improvements to ensure domestic stability and balanced and constructive foreign policy with the ultimate goal of strengthening the independence and sovereignty of state.

Following this strategy, President Mirziyoyev signaled new directions in both foreign economic relations and domestic economic policy. The areas were well-chosen: the adoption of foreign exchange controls and the high costs of conducting international trade were the two outstanding flaws in the economy.

A most significant reform came in September 2017, when the Central Bank of Uzbekistan reunified Uzbekistan’s exchange rates, and President Mirziyoyev promised freely floating market-determined rates for the future.  Simultaneously, restrictions were lifted for legal entities and individuals to convert currency. The currency reform was followed by increased activity in foreign financial markets.  This included substantial deals totaling over $1 billion with, among other, Deutsche Bank, Commerzbank, and the EBRD.

Mirziyoyev’s first year in power saw a flurry of reciprocal foreign visits that enabled the new President to establish relations with leaders of neighboring states and great economic powers. Mirziyoyev’s outreach to Uzbekistan’s neighbors signaled a shift in policies and priorities, and the meetings with Turkmen, Kazakh and Tajik leaders in particular highlighted connectivity, and hence Uzbekistan’s reintegration into a regional economic circle. This has begun to deliver results, including new direct air connections linking Tashkent to Dushanbe and Kabul, greatly facilitating travel, as well as growing trade figures.

Uzbekistan is making progress in reforming governance and public services, taking steps that are having an impact on the lives of ordinary citizens and makes it easier for businesses to operate. As a result of those reforms, the country has moved up to 74th place in the World Bank’s “Doing Business” ranking, from 87th in 2015.  

Reform has also reached the cotton sector. The ban on child labor in cotton picking was broadened to include education and health workers, and in September 2017, the government ordered all forced labor to be sent home.  Henceforth, wage increases may make cotton-picking more attractive to voluntary labor, while mechanization is also being considered. These reform policies were positively assessed by many international institutions, including the IMF and other International Financial Institutions.

Looking forward, Uzbekistan will need to work to reverse the bias against exports left over from the previous years.  South Korea accomplished this in 1964 after a decade of mild import substitution, suggesting it can be done successfully. There are already positive signs: exports increased by more than 15 percent and the country signed export deals worth $11 billion dollars in 2017.

The experience of 2017 is encouraging, but Uzbekistan’s reforms are at an initial stage, and the key issue is how successful the Mirziyoyev administration will be in implementing these systemic reforms. The initial steps have yet to create free pricing and competition in fuel, because the centralized management and pricing system remains in place.  This example highlights the multifaceted needs (e.g. enterprise reform and institutional change as well as price liberalization) if market mechanisms are to function well. In general, economic reform rarely yields immediate benefits, and requires some degree of patience.

The timing of Tashkent’s reforms is also auspicious because of the revival of continental trade linking Europe and Asia through Central Asia. Centrally located in the heart of Asia, Uzbekistan could serve as a transit hub for cargos coming from China, India, Pakistan, Afghanistan, and even Southeast Asian countries. China’s Belt and Road Initiative is providing a major impetus to develop infrastructure in the region. Other regional initiatives also work in Uzbekistan’s favor, including the launching of the Baku-Tbilisi-Kars railway, Turkmenistan’s interest in this project, and the Lapis Lazuli corridor linking Central Asia with Afghanistan. With Uzbekistan an engaged participant in these processes, the prospects for the development of continental trade are greatly improved.

In sum, in about 18 months, President Mirziyoyev outlined a very ambitious reform agenda and started to implement it. He undertook a full travel and meeting schedule to restore the country’s international links and, in particular, to repair Uzbekistan’s fractured relations with its Central Asian neighbors. He removed a millstone around Uzbekistan’s economy by unifying the exchange rate and liberalizing access to foreign exchange. Even though it is too early to draw definitive conclusions, these steps appear to have been harbingers of a shift from economic control to greater confidence in market mechanisms. An important signal that Uzbekistan is more open for business would be to complete negotiations for accession to the World Trade Organization (WTO). On March 13, 2018, the Government of Uzbekistan hosted representatives of the World Bank, Asian Development Bank, USAID and other donor organizations and discussed a detailed 34-point accession plan “Road Map” for Uzbekistan’s entry into WTO, thus demonstrating a clear determination to join the rules-based international trade system.

If Tashkent stays on course and liberalizes all prices, improves governance, encourages foreign direct investments, opens trade, and invests in greater connectivity with neighbors, the pay-off from this shift could be large, directly reflecting on job creation and greater prosperity for citizens of Uzbekistan.

 
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  • ASIA Spotlight with Prof. S. Frederick Starr on Unveiling Central Asia's Hidden Legacy
    Thursday, 28 December 2023 00:00

    On December 19th, 2023, at 7:30 PM IST, ASIA Spotlight Session has invited the renowned Prof. S Fredrick Starr, who elaborated on his acclaimed book, "The Lost Enlightenment: Central Asia's Golden Age from the Arab Conquest to Tamerlane." Moderated by Prof. Amogh Rai, Research Director at ASIA, the discussion unveiled the fascinating, yet lesser-known narrative of Central Asia's medieval enlightenment.

    The book sheds light on the remarkable minds from the Persianate and Turkic peoples, spanning from Kazakhstan to Xinjiang, China. "Lost Enlightenment" narrates how, between 800 and 1200, Central Asia pioneered global trade, economic development, urban sophistication, artistic refinement, and, most importantly, knowledge advancement across various fields. Explore the captivating journey that built a bridge to the modern world.

    To know watch the full conversation: #centralasia #goldenage #arabconquest #tamerlane #medievalenlightment #turkish #economicdevelopment #globaltrade

    Click here to watch on YouTube or scroll down to watch the full panel discussion.

  • Some Lessons for Putin from Ancient Rome
    Thursday, 04 January 2024 17:01
    By S. Frederick Starr 
    American Purpose
    January 4, 2024
     
    Vladimir Putin, having sidelined or destroyed all his domestic opponents, real or imagined, now surrounds himself with Romano-Byzantine pomp and grandeur. The theatrical civic festivals, processions of venerable prelates, cult of statues, embarrassing shows of piety, endless laying of wreaths, and choreographed entrances down halls lined with soldiers standing at attention—all trace directly back to czarism, to Byzantine Constantinople, and ultimately to imperial Rome. Indeed, Putin considers himself as Russia’s new “czar,” the Russified form of the Latin “Caesar.”
     
    But besides all the parallel heroics, Roman history offers profound lessons for today’s world. All of America’s Founders saw the Roman Republic as the best model for their own constitution. Napoleon, Mussolini, and Hitler, by contrast, found in imperial Rome a stunning model for their own grandeur. True, some of Rome’s ancient chroniclers, including the celebrated Livy, so admired specific politicians that they saw only their good sides and ignored the problems and failures. Yet there were others, notably the pessimistic Sallust, who not only wrote bluntly of history’s painful issues but delved deep into their causes and consequences.
     
    Is Putin likely to delve into the history of Rome for insights on his own situation? Unfortunately for Russia, Putin is not a reader, preferring instead to engage in exhibitionist athletic activities, preside at solemn ceremonies, or offer avuncular obiter dicta. However, if he would study the Roman past, he might come to realize that that model presents more than a few chilling prospects that he will ignore at his peril.
     
    To take but one example, a glance at Roman history would remind Putin that self-declared victories may not be as victorious as he and Kremlin publicists want to think. Back in the 3rd century B.C., when Rome was still a small state in central Italy, it was attacked by a certain King Pyrrhus, a rival ruler from Epirus, a region along today’s border between Greece and Albania. In his first battles Pyrrhus routed the Roman legions, and celebrated accordingly. But matters did not end there.
     
    Like Pyrrhus, Putin’s army scored some early victories in its war on Ukraine. As recently as December 1, Putin’s Minister of Defense Sergei Shoigu was still claiming, in spite of all evidence to the contrary, that Russian forces “were advancing on all fronts.” Pyrrhus made similar false claims, only to discover that his own soldiers were no match for the determined Romans. As the Romans drove Pyrrhus’ army from the field, he groused, “If we win one more such victory against the Romans we will be utterly ruined,” which is exactly what happened. Pyrrhus’ statement gave Romans the term “Pyrrhic victory,” which we still use today. Putin should apply it to his “victories” at Bakhmut and Avdiivka.
     
    Another crisis in Rome’s early formation as a nation occurred when a peasant uprising threatened Rome itself and, according to the historian Livy, caused panic in the Roman capital. In desperation, the elders turned to Lucius Cincinnatus, who was neither a military man nor a professional politician, but who had earned respect as an effective leader. It took Cincinnatus only fifteen days to turn the tide, after which he returned to his farm. George Washington rightly admired Cincinnatus and consciously emulated him, returning after the Battle of Yorktown to Mount Vernon. By contrast, Putin’s “special military operation,” planned as a three-day romp, is now approaching the end of its second year. Putin, no Cincinnatus, doomed himself to being a lifer.
     
    Roman history is a millennium-long showcase of motivation or its absence. In this context, Putin might gain further insights by examining Rome’s centuries-long battle against the diverse tribes pressing the empire from the north. For centuries Rome’s legionnaires were well trained, disciplined, and committed. The list of their early victories is long. Both Julius Caesar and the philosopher-emperor-general Marcus Aurelius succeeded because they motivated and inspired their troops. But over time the Roman army was increasingly comprised of hirelings, déclassé men who fought not to save the empire but for money or a small piece of the bounty. Inflation and rising costs outpaced pay increases. Punishment was severe, in some cases including even crucifixion. In the end, Rome’s army eroded from within.
     
    This is what is happening to the Russian army today. Putin attacked Ukraine in February 2022 with what was then an army of several hundred thousand trained professional soldiers. But after the Ukrainians killed more than 320,000 Russian troops, their replacements were unwilling and surly conscripts and even criminals dragooned from Russia’s jails. Putin quite understandably fears such soldiers. Putin’s army, like that of the late Roman Empire, is collapsing from within.
     
    By contrast, Ukraine’s army at the time of the invasion was small and comprised mainly Soviet-trained holdovers. Both officers and troops of the line had to be quickly recruited from civilian professions and trained. Yet they quickly proved themselves to be disciplined and resourceful patriots, not tired time-servers. True, Ukraine is now conscripting troops, but these newcomers share their predecessors’ commitment to the nation and to their future lives in a free country.
     
    Sheer spite and a passion for avenging past failures figured prominently in Putin’s decisions to invade both Georgia and Ukraine. Roman history suggests that this isn’t smart. Back in 220 B.C., Rome defeated its great enemy, the North African state of Carthage. Anticipating Putin, the Carthaginian general Hannibal sought revenge. Acting out of spite, he assembled 700,000 foot soldiers, 78,000 mounted calvary, and a force of war elephants, and crossed the Alps. Though he was a brilliant general, Hannibal’s war of spite turned into a disaster.
     
    Why did Hannibal lose? Partly because of his sheer hubris and the spite that fed it, and also because the Romans avoided frontal battles and simply ground him down. They were prudently led by a general named Fabius Maximus, whom later Romans fondly remembered as “the Delayer.” Today it is the Ukrainians who are the Delayers. By grinding down Putin’s army and destroying its logistics they have positioned themselves for victory.
     
    The Roman Republic fell not because of any mass uprising but because of the machinations of Julius Caesar. A victorious general, Caesar looked the hero as he was installed as imperator. As was customary at such ceremonies, an official retainer placed behind the inductee solemnly repeated over and over the admonition to “Look behind you!” Caesar failed to do so and underestimated the opposition of a handful of officials and generals who feared the rise of a dictator perpetuus. Even if Putin chooses not to read Cicero, Plutarch, or Cassius Dio, he could productively spend an evening watching a Moscow production of Shakespeare’s The Tragedy of Julius Caesar.
     
    Turning to a very different issue, Putin seems blithely to assume that whenever Russia defeats a neighboring country it can easily win the hearts and minds of the conquered, whether by persuasion or force. This is what many Roman generals and governors thought as well, but they were wrong—fatally so. Speaking of the impact of corrupt officials sent by Rome to the provinces, the great orator-politician Cicero declared to the Roman Senate, “You cannot imagine how deeply they hate us.” Does Putin understand this?
     
    Finally, it is no secret that Russia today, like ancient Rome, is increasingly a land of immigrants; its economy depends on impoverished newcomers from Kyrgyzstan, Tajikistan, and elsewhere in Central Asia who fled to Russia in search of work. Yet Moscow treats them as third-class citizens and dragoons them as cannon fodder or “meat” to die by the thousands on the Ukrainian front. Rome faced a similar problem and wrestled with it unsuccessfully over several centuries. Over time the despised immigrants who poured across the Alps from Gaul demanded a voice in Roman affairs, and eventually took control of the western Roman Empire.
     
    Sad to say, neither Putin himself nor any others of Russia’s core group of leaders show the slightest interest in learning from relevant examples from Roman history or, for that matter, from any other useable past. Together they provide living proof of American philosopher George Santayana’s adage that, “Those who forget history are condemned to repeat it.” In Putin’s case, though, he seems never to have known it. 
     

    ABOUT THE AUTHORSS. Frederick Starr, is a distinguished fellow specializing in Central Asia and the Caucasus at the American Foreign Policy Council and founding chairman of the Central Asia Caucasus Institute.

    Additional Info
    • Author S. Frederick Starr
    • Publication Type Analysis
    • Published in/by American Purpose
    • Publishing date January 4, 2024
  • CACI Chairman S. Frederick Starr comments on "Preparing Now for a Post-Putin Russia"
    Friday, 03 November 2023 18:30

    Whether Russian President Vladimir Putin dies in office, is ousted in a palace coup, or relinquishes power for some unforeseen reason, the United States and its allies would face a radically different Russia with the Kremlin under new management. The geopolitical stakes mean that policymakers would be negligent not to plan for the consequences of a post-Putin Russia. On November 2, 2023, CACI Chairman S. Frederick Starr joined a panel organized by the Hudson Institute’s Center on Europe and Eurasia for a discussion on how US and allied policymakers can prepare for a Russia after Putin.

    Click here to watch on YouTube or scroll down to watch the full panel discussion.

  • Central Asia Diplomats Call for Closer Ties With US
    Monday, 26 June 2023 00:00

    REPRINTED with permission from Voice of America News
    By Navbahor Imamova

    WASHINGTON -- U.S.-based diplomats from Central Asia, a region long dominated by Russia and more recently China, say they are eager for more engagement with the United States.

    Many American foreign policy experts agree that a more robust relationship would be mutually beneficial, though U.S.-based nongovernmental organizations express deep concerns about human rights and authoritarian rule in the five countries: Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan.

    Michael Delaney, a former U.S. trade official, argued in favor of greater engagement this week at a webinar organized by the American-Uzbekistan Chamber of Commerce.

    He noted that three of the five republics are World Trade Organization members and the other two are in the accession process — a goal actively encouraged by the U.S. government.

    "I've always believed that this is a geographically disadvantaged area. There are relatively small national economies," he said. But, he said, collectively the region represents a potentially more connected market, about 80 million people.

    Key issues

    In this virtual gathering, all five Central Asian ambassadors to Washington expressed eagerness to work on issues the U.S. has long pushed for, such as water and energy sustainability, security cooperation, environmental protection and climate, and connectivity.

    Kazakhstan's Ambassador Yerzhan Ashikbayev said that despite all factors, the United States does not want to leave the field to China, its global competitor, which actively invests in the region.

    "Recent visit by 20 companies to Kazakhstan as a part of certified U.S. trade mission, including technology giants like Apple, Microsoft, Google, but also other partners like Boeing, have shown a growing interest," Ashikbayev said.

    The Kazakh diplomat described a "synergy" of economies and diplomatic efforts. All Central Asian states are committed to dialogue, trade and multilateralism, he said. "As we are witnessing the return of the divisive bloc mentalities almost unseen for 30 years, it's in our best interest to prevent Central Asia from turning into another battleground of global powers."

    During his first tour of Central Asia earlier this year, Secretary of State Antony Blinken visited Kazakhstan and Uzbekistan, meeting separately with the foreign ministers of all five countries.

    That was deeply appreciated, said Meret Orazov, Turkmenistan's longtime ambassador, who also praised the regular bilateral consultations the U.S. holds with these countries.

    Uzbek Ambassador Furqat Sidiqov sees the U.S. as an important partner, with "long-standing friendship and cooperation which have only grown stronger over the years."

    "The U.S. has played a significant role in promoting dialogue and cooperation among the Central Asian nations through initiatives such as the C5+1," he said, referring to a diplomatic platform comprising Washington and the region's five governments.

    "This is where we address common concerns and enhance integration," said Sidiqov. "We encourage the U.S. to bolster this mechanism."

    Tashkent regards Afghanistan as key to Central Asia's development, potentially linking the landlocked region to the markets and seaports of South Asia. Sidiqov said his country counts on American assistance.

    'Possibility of positive change'

    Fred Starr, chairman of the Central Asia-Caucasus Institute in Washington, ardently advocates for the U.S. to adopt closer political, economic and people-to-people ties with the region.

    In a recent paper, he wrote that among dozens of officials, diplomats, entrepreneurs, experts, journalists and civil society leaders interviewed in Central Asia, "even those most critical of American positions saw the possibility of positive change and … all acknowledged that the need for change is on both sides, theirs as well as ours."

    This is the only region that doesn't have its own organization, said Starr, arguing that the U.S. could support this effort. "We have not done so, probably because we think that this is somehow going to interfere with their relations with their other big neighbors, the north and east, but it's not going to. It's not against anyone."

    "Easy to do, low cost, very big outcome," he added, also underscoring that "there is a feeling the U.S. should be much more attentive to security."

    "Japan, the European Union, Russia, China, their top leaders have visited. … No U.S. president has ever set foot in Central Asia," he said. He added that regional officials are left to wonder, "Are we so insignificant that they can't take the time to visit?"

    Starr urges U.S. President Joe Biden to convene the C5+1 in New York during the 78th session of the U.N. General Assembly in September. "This would not be a big drain on the president's time, but it would be symbolically extremely important," he said. "All of them want this to happen."

    Read at VOA News

  • Read CACI Chairman S. Frederick Starr's recent interview on the resurgence of Imperial Russia with The American Purpose
    Tuesday, 23 May 2023 00:00

    Why Russians Support the War: Jeffrey Gedmin interviews S. Frederick Starr on the resurgence of Imperial Russia.

    The American Purpose, May 23, 2023

    Jeffrey Gedmin: Do we have a Putin problem or a Russia problem today?

    S. Frederick Starr: We have a Putin problem because we have a Russia problem. Bluntly, the mass of Russians are passive and easily manipulated—down to the moment they aren’t. Two decades ago they made a deal with Vladimir Putin, as they have done with many of his predecessors: You give us a basic income, prospects for a better future, and a country we can take pride in, and we will give you a free hand. This is the same formula for autocracy that prevailed in Soviet times, and, before that, under the czars. The difference is that this time Russia’s leader—Putin—and his entourage have adopted a bizarre and dangerous ideology, “Eurasianism,” that empowers them to expand Russian power at will over the entire former territory of the USSR and even beyond. It is a grand and awful vision that puffs up ruler and ruled alike.

    What do most Russians think of this deal? It leaves them bereft of the normal rights of citizenship but free from its day-to-day responsibilities. So instead of debating, voting, and demonstrating, Russians store up their frustrations and then release them in elemental, often destructive, and usually futile acts of rebellion. This “Russia problem” leaves the prospect of change in Russia today in the hands of alienated members of Putin’s immediate entourage, many of whom share his vision of Russia’s destiny and are anyway subject to Putin’s ample levers for control. Thus, our “Putin problem” arises from our “Russia problem.”

    Click to continue reading...