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Economy Must Embrace Free Market

By News Briefing Central Asia
Despite a rise in economic growth last year, Uzbekistan is failing to reach its full potential in the face of excessive state interference and its reliance on natural resource exports, say analysts.

President Islam Karimov announced at a cabinet meeting on February 12 that GDP grew 7.3 per cent last year. He pointed out that a significant increase in direct foreign investments and the development of small and medium-sized businesses had played a major part in strengthening the economy.

Nishanbai Sirojidinov, deputy director of science at the Tashkent-based Centre for Economic Studies, confirms that Karimov’s statistics are an accurate reflection of the current situation in Uzbekistan.

Reduced taxes have had a big impact on private business and Uzbekistan is developing real entrepreneurship for the first time, argues Sirojidinov. Income tax dropped significantly from 40 per cent in 2005, to around 12 per cent last year providing a big incentive to set up new ventures.

Favourable prices for Uzbek exports on the world market have also contributed to the rise in GDP, and the export share in the national total increased by 18 per cent last year.

According to a World Bank economist, the Uzbek economy has grown remarkably over the past three years, thanks in part to sharp price rises in its major exports, gold, cotton and copper. Gold for example rose from 270 US dollars per ounce in 2002 to 650 dollars in 2006.

But even though the figures for 2006 herald good news, Uzbekistan’s prospects for further development are being hampered by government policy. The expert said, “The state keeps on dominating in the economy. The bank sector, foreign trade and agriculture are all in dire need of liberalisation.”

These sectors of the economy are tightly controlled by the state. Uzbekistan refused to apply the “shock therapy” method for rejuvenating the economy adopted by other post-Soviet countries upon independence, opting instead for “gradual” development. Uzbekistan does not encourage entrepreneurs and has not privatized any of its major services.

Sirojidinov justifies the government’s policy by suggesting that it best suits national feeling.

“Swift reforms would have resulted in serious social problems. And taking account [the country’s] mentality, if the population looks to the state to provide some of its needs [and it can’t deliver], that would lead to a big crisis,” he said.

However, the World Bank expert asserts that in a flourishing free market economy, Uzbeks would not need to rely on the state. Economic reforms should be speed up to help Uzbekistan move into a market economy, in which private entrepreneurship is the vehicle of growth.

She refers to international experience, which shows that “free foreign trade, investment regimes and a strong private bank sector are needed for continuous growth”.

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

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