Bankruptcy Gets Easier in Uzbekistan

A new presidential decree making it easier for bankrupt businesses to sell their assets will go some way towards bolstering the economy, but broader measures are still needed to improve business conditions, NBCentralAsia observers say.



The decree, which comes into effect on July 1, makes it easier for companies to declare themselves bankrupt. Once a business takes this step, its financial transactions halt immediately, as does tax liability.



The idea is that making bankruptcy an easier option, and one that can be taken before things get too bad, will help many entrepreneurs get back on their feet.



Until now, bankrupt businesses have had to go through excessive red tape to complete the liquidation process, making it difficult to gain tax exemptions or dispose of assets.



NBCentralAsia observers have welcomed the decree, but say many more measures will be needed before small and medium-sized businesses operate in a favourable climate.



One interviewee in the Fergana region who runs a large farm says there are currently a lot of “dead” firms, which indicates the poor state of the business sector.



He argues that although the government has issued a number of decrees aimed at helping small and medium-sized businesses, systemic corruption has stopped the legal changes from having any effect. “This kind of ruling ultimately proves ineffective in countries where nothing is done to prevent corrupt practices,” he said.



According to government statistics, small and medium-sized enterprises, SMEs, contributed 42 per cent of Uzbekistan’s gross domestic product last year, and employed seven million people, or 70 per cent of the workforce.



However, a World Bank report dating from 2004 found that the number of SMEs was falling. That report said the main barriers facing businessmen were tough regulations on importing and exporting goods, high taxes, lack of access to cash in the banks, excessive red tape in registering and licensing a business, and the risk of business account information being passed on to third parties.



The report said that starting up and conducting business in the agrarian sector was “especially difficult”, while just one third of all the businessmen polled were able to export goods legally - the rest did so by the back door.



The World Bank study concluded that the business environment was not conducive to SME-led economic growth.



Three years on and virtually nothing has changed. A former regional official who did not want to be named told NBCentralAsia that competition, government interference and administrative barriers are the cause of many business failures, and subsequently make it impossible to liquidate the failed company.



“The main reason why the business sector is not developing is that all areas of the economy are carved up among clans and families, while a successful company will be closely monitored by the police,” said the former official.



Tashkent-based sociologist Komron Aliev said now that businesses can go into liquidation properly, their owners will be better able to recover from the suspended animation of bankruptcy and start recovering.



“The bureaucratic machine used to prolong the process. This decree will probably reduce corruption to some extent,” he said.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)