Download Karimov`s economy: a memoir from 25 years of periodic observation

Karimov’s economy: a memoir from 25 years of periodic observation
Marianne Kamp, University of Wyoming
Scholars and journalists who write about Uzbekistan, and many of Uzbekistan’s citizens who
long for a more open system, evaluate President Karimov’s performance as head of state as
morally abhorrent, and oppressive both politically and economically. At the same time, many
citizens of Uzbekistan, and of neighboring states, offer instead the appreciative evaluation that
Karimov brought Uzbekistan stability. This brief discussion, based on my own research in and
travel to Uzbekistan over the past 25 years, seeks to understand their appreciation for stability
and moderate economic growth.
When I first arrived In Uzbekistan in April 1991, Soviet "normal" was over, and the economy
was in free-fall. The disconnect between official prices and street value for goods drove
corruption. Rationed foods were in deficit, but abundance could be found in the bazaars. The
fixed prices on airline tickets allowed me to fly Tashkent to Moscow for the equivalent of 3 US
dollars, and train ticket booths were jammed with speculators buying up tickets for resale.
Salaries paid by state institutions provided only a fraction of the real cost of daily life.
Uzbekistan’s independence, born from the August 19, 1991 coup against Gorbachev, raised
hopes that the government of this independent republic would be able to get a handle on the
chaos, and, freed from Soviet economic exploitation, Uzbekistan would flourish. However, the
collapse of the Soviet command economy led to factory closures and a rapid rise in
unemployment. When I returned to Uzbekistan in the fall of 1992, I quickly learned a basic
lesson about inflation: do not change many dollars at once, because rubles would buy half as
much next week. In Tashkent’s underpasses, elderly Russian women who muttered “Dai Khristo
radi” (give alms for the sake of Christ) were joined by orphans whose children’s homes could
not provide, and by Afghan refugees fleeing the fall of Najibullah’s Kabul.
It was clear that Uzbekistan had to launch its own currency: even if the ruble zone had continued,
it offered Uzbekistan absolutely no fiscal control. Early in 1993, a transitional currency, the
so’m-kupon appeared; distributed carefully, it was supposed to create trust and stabilize inflation.
In fact, I could trade dollars at doors of Tashkent’s Central Universal Store, where pensioners
sold their books and antiques, and exchanged so’m-kupon for valiuta, the prized hard currency.
Uzbekistan’s nascent financial system was in arrears for salary and pension payments for a few
years, even after the So’m was launched in July 1993, and inflation abated.
In the early 1990s Uzbekistan carried out an enormous transfer of state property to households
by privatizing state-owned multi-unit apartment buildings. For 40 percent of households who
lived in such dwellings, this transfer was gratis, and for the remaining number, it took place at a
cost so nominal that most paid in cash. (USAID 1993, 18-19) A lively rental and sale market
prompted many to make claims on units emptied by those who emigrated. Those millions who
had built courtyard style homes from their own means did not protest that this one-time transfer
of state property was a give-away to half of the citizens. Neo-liberal wisdom explained that
auctions for such state-owned assets as hotels would produce the correct market value, but this
capitalist insight ignored the reality that almost no one in Uzbekistan had investment capital.
1
Assets were sold for a song, and a few well-placed bureaucrats began transforming themselves
into oligarchs. International consultants found much to commend, and only lamented that
Karimov did not take the same privatization approach to farmland.
The Mundell-Fleming trilemma posits that “a country must choose between free capital mobility,
exchange-rate management, and monetary autonomy . . . only two of the three are possible.”
(Economist, 51) Although international wisdom also touted FDI (foreign direct investment), and
Uzbekistan was interested in attracting investors, Karimov’s economists eventually decided that
the so’m would not become a convertible currency. This deterred foreign investment, but also set
some limits on one post-Soviet financial plague: oligarchs in all former Soviet states were
stripping assets and hiding their newly minted fortunes in Swiss banks. Rather than flexible
exchange and ease of capital flows, Karimov opted for fixed exchange, which almost inherently
produced a black market for hard currency and allowed the state to continue some Soviet-era
economic practices. Collective farms were gradually transformed into jointly owned enterprises,
and leasing of farmland began, but after a few years of experimentation when cotton producers
could sell their crop to competing buyers, the Uzbek government asserted control over cotton
and wheat, establishing quotas, preventing private sales, fixing low purchase prices, and profiting
from exporting at world prices. Between 1998 and 2000, this reassertion of state control, plus
strong-arm tactics for taxation, and clearing out of spontaneous market-places in the name of
public health and order nearly choked off the thriving but unregulated small business sector
while offering benefits to a few.
In the 1990s, the economies of nearly every former Soviet state were equally troubled, no matter
whether they had adopted shock therapy principles or had taken the slow ramp away from
socialism, but after world commodity prices began increasing in the early 2000s, there was a
rapid differentiation. Russia and Kazakhstan became labor magnets, attracting workers from
Uzbekistan and other Central Asian states. This was the case even though increases in world
prices for cotton, gold, and natural gas, and some careful planning, provided Uzbekistan with
steady nominal economic growth, averaging 8% annually since 2006 (World Bank 2016).
Uzbekistan’s extremely low wages compare unfavorably with potential earnings abroad, and
many families in Uzbekistan regard labor migration as the best way to accumulate money for
building a house or buying a car. Remittance earnings, which increased every year until Russia’s
2014 economic slide, tend to be used for consumption and household assets rather than as
investment capital for new businesses in Uzbekistan, although the service and small enterprise
sector has grown. Almost any kind of foreign employment would seem preferable to government
requisitions of state employees and students to hand-pick cotton for pennies per kilo. On the
other hand, rural farm laborers (mostly women) worry that the government’s very recent decision
to increase mechanical harvesting of cotton will decrease their seasonal income (Swinkels et al
2016, 7-8, 14).
Karimov apparently learned some lessons from the early 1990s economic turmoil: he sought
economic stability by controlling money and major production sectors. There was admiration for
the Singapore or South Korean model, developing state-controlled capitalist economies under
dictatorial regimes. State domination of the major export sectors went hand-in-hand with
2
Karimov’s controls on political expression. Following the 2005 turmoil in Andijon, the
government actively encouraged labor migration by increasing the reliability of remittance
transfers, by negotiating with Russia for some rights for Uzbek migrant workers, and by
restricting employment and entrepreneurship possibilities in Uzbekistan. Remittance-based
income improved the living standards of many households, and it also prevented political unrest:
young people who are earning hard currency abroad are not in Uzbekistan protesting against low
wages, underemployment, corruption, lack of sufficient spaces in higher education, and lack of
political freedoms, and are not joining political opposition movements or terrorist groups.
Observers who are able to write freely focus on Karimov’s many modes of political oppression.
But over the past 25 years, Karimov’s economic approach produced some improvements. Key
aspects of Uzbekistan’s economy are more solidly founded and produce significantly better
outcomes for most of Uzbekistan’s citizens than did the system Uzbekistan began with in 1991.
Uzbekistan’s government targeted some of its export earnings toward infrastructure, building gas
lines and highways, and upgrading railroads. Uzbekistan’s massive rise in car ownership in the
2000s corresponds to significantly expanded urban thoroughfares and upgraded highways. Social
spending, which never fell to the depths that it reached in some of Uzbekistan’s neighboring
states, continued to provide education, health care, and mostly regular payment of pensions, and
revisions in Uzbekistan’s welfare programs target aid to the most needy.
There was certainly no guarantee that a different strategy for economic growth, one based on
truly free markets, for example, would have had better results. The system that Karimov built
offers predictability, and sustains power in the hands of a few.
Sources:
“Housing Privatization in the Central Asian Republics of the Former Soviet Union.” Feiden,
Salcido, et al. USAID 1993
“The Mundell-Fleming trilemma: Two out of three ain’t bad.” Economist, Aug 27, 2016, vol.
420, no 9004, 51-52.
World Bank Group—Uzbekistan Partnership: Country Program Snapshot. April 2016.
http://pubdocs.worldbank.org/publicdoc/2016/4/721071461603894085/Uzbekistan-Snapshots2016-en.pdf Accessed Sept 19, 2016
Swinkels, R., E. Romanova, Evgeniy Kochkin, “Assessing the social impact of cotton harvest
mechanization in Uzbekistan.” World Bank, final report, June 2016.
http://documents.worldbank.org/curated/en/753131468301564481/pdf/105190REPLACEMENT-WP-P151288-PUBLIC.pdf
Marianne Kamp is Associate Professor of History at the University of Wyoming, and writes
about Uzbekistan is the Soviet and independence periods. Her co-authored article with Russell
3
Zanca on “Recollections of collectivization in Uzbekistan: Stalinism and Local Activism” was
published in Central Asian Survey in 2016.
4