Uzbekistan’s Mounting Problems

Like many Central Asian nations, Uzbekistan is under the control of an authoritarian strong man. Islam Karimov has been in power since the time of the collapse of the Soviet Union in 1990 and he has ruled the country with an iron fist. The international community has repeatedly criticized the Karimov administration’s record on human rights and press freedom. In particular, Craig Murray, the British Ambassador from 2002 to 2004, described widespread torture, kidnapping, murder, rape by the police, financial corruption, religious persecution, censorship, and other human rights abuses. On the rare occasions when they country has appeared in Western newspapers, it has usually been in relations to these human rights violations. Yet in recent weeks there have been increasing signs that the country is now under growing financial strains. In this, it seems to be joining other former Soviet nations such as Azerbaijan and Kazakhstan, both of which have been adversely affected by the collapse in commodity prices and the sharp slowdown in the Russian economy. The press is tightly controlled by Karimov and his cabal of cronies, so reports of problems have not appeared in the pliant Uzbekistani press, but news reports from neighboring countries suggest that trouble is brewing.

While the official narrative holds that the nation is set to grow at a bullish 7% this year, an increasing body of evidence suggests that the country is struggling. Russian state news service Sputnik recently reported that in 2015 Uzbekistani firms were slapped with fines worth a total of 1.5 billion sum ($500 million at the official exchange rate) for wage arrears owed to employees. The fines resulted from 1,300 complaints filed with the State Legal Labor Inspection service, Sputnik added. It is believed that this is a sign that companies are having increasing cash flow problems. Uzbekistan’s main three commodities are gold, cotton and gas and prices for the latter two have taken a hammering over the past 2 years. Perhaps even more serious has been the loss of remittances of local workers from Russia and Kazakhstan. As jobs have dried up in these neigjboring, an exodus of Uzbek guest workers have started returning home. The local job market is said to be completely unable to absorb these workers.

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Islam Karimov, President of Uzbekistan since 1990

Last week news also emerged of scandals within the financial sector. The industry was rattled when the government placed a ban on Hamkorbank’s foreign currency operations following reports of the arrest of Asaka Bank chairman Kahramon Oripov. Oripov is suspected of manipulating the disparity between the official exchange rate and the rate on the country’s thriving black market to cream off profits.The black market keeps a vast pool of cash outside of the official financial sector in the country, and the crackdown on banks’ currency operations may hint at liquidity problems in the sector (which officials insist is healthy) as demand for dollars soars in Uzbekistan. The Uzbekistani currency, the som, has been under downward pressure for some time, suggesting a steady worsening of the country’s terms of trade. From a rate of 2,450 to the USD in mid-2015 the som has declined to 2,850 now. And this in spite of government controls aimed at smoothing out fluctuations in the exchange rate. Many observers have concluded that the government is losing its ability to keep the economy steady, forcing ever more foreign exchange transactions and workers into the informal economy. Uzbekistan should now been added to the list of troubled Central Asian economies.

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