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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