Uzbekistan: Progress by 'Decrees'

Uzbekistan marks its fifth anniversary of independence this week, assured in its reputation for self-sufficiency and stability but with foreign investors worrying that heavy-handed political control from the top could be leading to stagnation.

The Central Asian republic of 22 million has some cause for pride. Rich in oil, gas and gold, it is the only former Soviet republic to reach self-sufficiency in energy, and has redirected more than half its trade away from the former Soviet Union to the West and Far East.

"If you come back in 15 years and there would be only one independent republic in the former Soviet Union, it would be Uzbekistan," one Western diplomat said.

But while President Islam Karimov's conservative approach to market reforms and democracy has ensured stability in his country, avoiding both the economic collapse and popular unrest that have haunted his neighbors, some say his one-man rule has come to inhibit the country's economic development.

"It's a real command economy," said Willem Visser, general director of Martens Trading, which runs four Dutch supermarkets in Uzbekistan. "They are all waiting for a presidential decree on anything. Things are going too slow. People are afraid to say what's the problem. That's not good for business."

Like Visser, many others feel that Uzbekistan's rigidity discourages investment, causes economic reforms to lag behind the rest of the former Soviet Union and thereby challenges the very independence Karimov has worked to achieve.

This became painfully clear this summer, when hundreds of foreign investors and traders could only convert a fraction of their revenues in sums, the local coin, back into hard currency.

Without offering any explanation, the Central Bank denied most conversion applications for three months straight. British American Tobacco, the country's second-largest investor, says it has been able to convert only $1.5 million since January, while it needs at least $7 million in hard currency just for basic imports.

The government has given no explanation, but Western bankers and investors say hard-currency revenues fell short while imports rose unexpectedly. The price of cotton, the country's main source of revenues, dropped while the domestic harvest of grain, the main import commodity, failed to meet optimistic expectations just as world prices reached record highs.

In both cases, analysts say, the government was slow to respond, partly because mid-level officials were afraid to break the bad news.

"The whole system is based on telling the boss good news and hoping he never finds out the truth," one British businessman in Tashkent said.

As a result, the government sold low and bought high and ended up with its first-ever negative trade balance of $348 million for the first half of 1996. The very reliance on cotton makes the country's economic independence a tenuous achievement.

Investors in Uzbekistan have little hope that the government will float the sum any time soon, but they see signs that Karimov is changing course. He has delegated some authority to his new reformist prime minister, the energetic Utkir Sultanov, and has just put a five-day deadline on company registration, now a three-month-long hassle.

"They're really sincere about making things easier for investors," said Bob Berry, representative for the U.S. gas producer Enron.

"They are not going fast. It's a matter of caution, trying to avoid serious mistakes. I'd rather have it that way than making rash decisions now and having it go wrong later."

Others warn that the rise of real markets around Uzbekistan could simply force Karimov's hand.

"Despite all his criticism, nothing moves," one Western economist said. "He realizes that there is a problem, but he still thinks he can manage it.

"Everything is administered. Nothing is market-driven. We'll have to see how long this kind of administration can keep going or whether it will break down for lack of a market."