Uzbekistan should be the greatest success story of Central Asia and possibility the whole of the Commonwealth of Independent States (CIS). The fact that it isn’t is entirely down to Islam Karimov.
At the start of my journalistic career a bizarre set of coincidences deposited me in Tashkent working as a freelancer in 1995. The country was starting to open up and I was fortunate to land a rare face-to-face interview with President Islam Karimov for a report I was writing for Institutional Investor.
Capitalism had barely reached Uzbekistan in those days. The British Embassy was housed in two suites in the Intourist’s Hotel Uzbekistan that had the only decent restaurant in the city, a Korean place that served up spicy kimchi pickels and hookers. We had to drive to Almaty to get green salad in the winter and went there often as Uzbek Air regularly ran out of fuel, trapping you in the country for weeks.
But it was an exciting time too. When I arrived there were few expats, other than embassy staff and a handful of Europeans from the International Monetary Fund and the EU’s TACIS technical aid programme. But as the private sector began to establish itself, business people – first traders and then investors – began to appear, attracted by the large population and the country’s central location. Uzbekistan is by far the most populous country of the five Soviet ‘Stans with 30mn people and one of the fastest growing populations in the CIS. Some 40% of the population are under 25 and it will overtake both Poland and Ukraine in the next two decades in terms of the number of citizens.
This largish country is also the natural production and distribution centre for the rest of the region, as it is the only ‘Stan to share a border with all the others. As most of the region is desert to the west and north, all the capitals of the five newly minted republics are actually quite close to each other, huddled up around the luscious Fergana Valley. (Kazakhstan has since moved its capital to Astana in the north of the country from Almaty in the south.) An overnight bumpy bus ride through checkpointless borders in the shadow of the Tien Shan mountain range brought you to Bishkek and Almaty reasonably fast; thanks to Stalin’s arbitrarily drawing boundaries on the map you had to cross the Kyrgyz border twice to get from there to Tashkent.
I ended up living behind the TsUM department store in central Tashkent, close to the giant Chorsu Bazaar, which has been there since the Silk Road days. The focal point of the city, it is replete with the most delicious melons and tomatoes you’ll ever eat, piles of coloured spices and giant woks of plov (pilaf) cooked with the local yellow carrots, a special fat-tailed sheep unique to the region and rice, all fried in cotton seed oil.
Soon new shops started opening. A Turkish company set up the city’s first supermarket round the corner from me that offered an extremely limited range of goods, but did import decent cheese, which was hard to get. Then a burger joint opened down the road that was enormously popular with young Uzbeks and eventually a nightclub opened in a building attached to the local university. At this point people from companies like Coca-Cola and Motorola arrived.
Among the first big companies into Uzbekistan was Proctor & Gamble, from where I was physically escorted out of their office when I walked in to see if I could arrange an interview with the boss. They didn't want their competition to know how big their operation was. The luggage-maker Delsey was another pioneering entrant; apparently people buy suitcases once in their life, so Delsey had sent a young French man with an entire set of its bags to try to open up the market.
My friend Brian Bowen, a slightly mad American from Perry, Georgia with a heavy southern drawl and a flamboyant love of life, set up the first mobile phone company Uzdonribita, which cornered the mobile phone market for several years. Bowen’s button-down shirts and raucous laugh was totally out of place in Central Asia, but this was the time of the buccaneers and he flourished. When the government didn’t have the cash to pay a big bill, Bowen accepted several tones of raw cotton in lieu and sold it in Egypt, making a killing on the deal. On another occasion when the government was short again, Bower called in his staff and told them to cut off Karimov’s phone. They looked at him in disbelief and rushed out of the room to phone the people at the telecom ministry. The bill was paid immediately.
But things soon started to go wrong. Post-Soviet Uzbekistan had only one source of hard currency revenue: cotton, or “white gold” as it is known locally. Cotton plants even feature on the state emblem, but the mismanagement of water resources have drained the Aral sea and left the surrounding land caked in salt as if it were a fresh snowfall . The country used to earn some $3bn a year from exporting it, which made up the lion’s share of budget revenues. The boom of private enterprise in the first half of the 90s saw stores open everywhere, sparking an insatiable thirst for imports, but Karimov freaked out when he got the bill – a $1bn trade deficit. It was then that Karimov showed his true colours. In a famous speech he announced: “We are not going to waste our precious hard currency reserves on importing chewing gum”, and so introduced a strict currency conversation scheme. Dollars disappeared overnight, and a dual exchange rate appeared that is still there today – one of the last parallel currency conversion rates left in the CIS.
Unable to repatriate profits in hard currency the interest of foreign investors evaporated. The shops began closing and the elite, which did have access to dollars via the newly established National Bank of Uzbekistan, run by Rustam Azimov, who is now first deputy prime minister and one of Karimov’s most trusted allies, began to take over the most successful businesses. In this period my local nightclub became the only disco in town after Gulnara, Karimov’s eldest daughter, appropriated it.
Getting hold of dollars became the key to doing business and the entire supply was held in the NBU, then housed in an attractive Soviet-era mansion on a leafy street in central Tashkent. I spent a lot of time in the bank, as it was also the hub of economic development and the only source of decent economic data. Azimov was gregarious and friendly, happy to sit and talk about the plans to develop the banking or the food processing sectors over a cup of tea in the library of the building. He has remained the intellectual force behind Uzbekistan’s policies ever since and remains a key advisor in Karimov’s political inner circle, who is said to have talked to Azimov every day.
Clearly a political survivor who knows the Uzbek corridors of power well, his position remains tenuous, especially if Karimov’s death is confirmed. Late in the 90s I wrote a story about Uzbek banking reforms led by Azimov, mentioning that he was an obvious eventual successor to Karimov. As luck would have it, I bumped into Azimov shortly afterwards at a conference and he pulled me aside. “Please never write that I might be a successor to Karimov,” he whispered earnestly. Clearly the ice is thin in the Uzbek political world and everyone tries to tread lightly.
The state husbanded its resources, making only about $1bn a year available for trader or foreign equipment purchases. Companies like Proctor & Gamble did deals with a bevy of trading companies close to the authorities to get their shampoos and toothpaste into the country, but the biggest beneficiary was Coca-Cola. The US company had done a deal to build a large manufacturing plant for its soda with Mansur Maqsudi, an Afghan-American businessman, who married Karimov’s eldest daughter Gulnara in 1991.
Maqsudi was still in his 20s when I met him at the sparkling new Coca-Cola factory just outside the capital. It could have been anywhere, as all the components were flown in. Maqsudi sat in a large office and chatted away happily about his plans to build up a pan-regional business, while his US colleagues sloped around in the background. It was quite clearly Maqsudi’s company. Later, a friend at the NBU gave me a glimpse of the distribution list for the $1bn earmarked to support his business; Maqsudi was getting a quarter of the total to buy formula to make his cola.
The atmosphere in Tashkent slowly became more oppressive. A few brand new malls opened after currency conversion came in, one of which housed the local branch of Raiffeisen Bank International, one of the only multinational banks to set up in Tashkent. But the malls remained mostly empty, as few could afford the luxury goods like widescreen TVs on offer.
In the midst of the economic aftermath of the new currency conversion rules, I was finally awarded an interview with Karimov. Getting in to see presidents and prime ministers is always a time-consuming business, but I had been in Tashkent for months at this point and was writing a big sponsored report for the US financial magazine Institutional Investor, as the Uzbek government still had aspirations to attract foreign investment.
The government had done one big deal already with the US company Newmont Mining Corporation that had discovered decades worth of untouched tailings at the Zarafshan open pit gold mine. We flew out to inspect the mine, a high-tech hive of lights and pipes located in the Kyzylkum desert about 400km west of Tashkent. The $250mn Zarafshan-Newmont Joint Venture gold operation at Muruntau was the first significant foreign joint venture with a Western company, with the deal signed in 1993.
Just treating the tailings, which had been discarded by the Soviets, would produce tonnes of gold a year, which were kept in a very solid small hut with a thick metal door in its own compound beside the plant. Inside were hip-high stacks of gold ingots awaiting shipment. But in March 2006 the deal went sour and the authorities changed the tax law, basically killing off the business.
On the appointed day I appeared at the presidential palace in a freshly laundered suit and was picked up by a nervous aide, who ushered us through several layers of security. Presidential flacks are always fawning, but this one took it to a new level by deciding that my hair was too dishevelled, producing a comb and proceeded to attack me with it without warning.
We were finally ushered into a meeting room to shake hands with Karimov as the local press buzzed around us. Karimov was the same as any senior politician I have interviewed in eastern Europe; immaculately dressed in a tasteful and obviously expensive suit, with a crisp white shirt and a light blue silk tie tied into a broad Windsor knot. His handshake was firm, but he remained distant throughout the next hour, leaving the impression that we were here for a purpose and not as two people.
Finally, we sat on an overstuffed saffron yellow couch with matching armchairs. The then-prime minister Utkir Sultanov, who served in the post for eight years and died last year, was seated to one side. Sultanov didn’t say a word throughout the entire conversation, nor look up, but scribbled down every word that was said in a little notebook.
The interview was uneventful and largely uninteresting. As with any political interview in this part of the world, you are required to submit your questions in advance, which turns into a long haggling process, and Karimov had a copy of my questions in front of him, mostly low-ball stuff like: “What are the best opportunities for foreign investors that Uzbekistan has to offer?”
The one point of interest was when I asked Karimov when the currency controls were going to be removed, a question that had specifically not been approved. Sultanov gave a little jump as I posed it, but Karimov didn’t miss a beat and began to explain about the country’s limited access to hard currency revenues and the need to direct this money to import equipment that would allow the economy to develop. When I pressed him on the timetable for rolling back the regime he answered: “I think in the next six months we can begin to talk about relaxing the [currency controls] regime.” That was in 1995.
Karimov was an old-school Soviet apparatchik, who kept his minons on a very short leash. The Soviet system was an elitist system run on the basis of granting rewards in the form of privilege. In the post-communist world the system remained the same, except that money, or the ability to make money from a privileged position, became the reward. This is not the same as capitalism where the money is earned. Karimov’s entire regime was built around his power to give or take these privileges away. A few months after I interviewed the head of Uzbek Air, an affable long-serving pilot, he was arrested and jailed on corruption charges after he found himself on the wrong side of a power struggle.
Dysfunctional institutions means corruption embeds itself in the system in most of the CIS, and Uzbekistan is no exception. The corruption came under the spotlight during the nasty divorce between Maqsudi and Gulnara in 2004, which was contested in New York. That meant all the assets being disputed had to be declared to the court and included a long list of international apartments around the world (including one on the shores of Lake Geneva that was later occupied by opposition members), expensive jewellery and tens of millions of dollars in cash.
Back in Uzbekistan, 24 of Maqsudi’s relatives were deported and three of his family members jailed. Maqsudi could’t go back to Tashkent, as he would have to face an Uzbek arrest warrant ironically for “import-export fraud”. His parents briefly took over control of the Coca-Cola plant, before fleeing as well to the US.
Despite the fact that Maqsudi held a US passport, there was little protest by the US State Department. After 9/11, American troops fighting in Afghanistan were based in the Karshi-Khanabad base in the Uzbekistan desert from 2001 and US aid to the country rose to almost $90mn a year soon after.
At street level, the oppression rose slowly as well. Tashkent is remarkable for the number of police that roam the street and constantly challenge you for your documents. I was nearly arrested once by two young policemen who accused me of being a spy. “You say you are English, but then how come you speak such good Russian?” was what was making them suspicious.
The best thing to come out of my interview with Karimov was a picture of me shaking his hand that appeared in the local newspapers the next day, which I cut out and kept in my wallet. When the policemen began to get aggressive I showed them the picture only to see their faces go pale and they turned and almost ran away.
I had to use the same trick again a few weeks later. Karimov drove passed me at top speed in his cavalcade in the centre of the city on the way to work – a daily routine that closed the centre to traffic for 15 minutes each day. I had my camera in my hand and took some pictures as he passed, but one of the jeeps in his security detail immediately screeched to halt beside me and four secret service agents jumped out brandishing what looked like Uzi machine guns. Despite my protests, I was bundled into the car and taken to their headquarters. My Karimov photo did its magic again and protected me from arrest, but I was only let go when I gave up the roll of film in my camera.
Under Karimov some people have seen their lot improve. He single-handedly negotiated with the chain-smoking founder of Daewoo, Kim Woo-jung, who was persuaded to build a large automotive plant in Andijan. The UzDaewoo cars it churned out were exported all over the CIS and for a while were the most popular cheap cars in Russia.
He also brought stability to a region that is surrounded by war and jihadism, but at a heavy cost: Uzbekistan has more political prisoners than all its neighbours together and has an appalling human rights record, epitomised by the Andijan massacre in 2005.
However, the ultimate measure of his rule is the slaughter that occurred on May 13th of that year, when Uzbek Interior Ministry and National Security Service troops fired into a huge crowd of protesters in Andijan. It was symptomatic of Karimov's obsession with control. Estimates of those killed range from the official government count of 187 to several hundred, with reports of bodies being hidden in mass graves. Karimov legacy will not be the economic stability he brought but the persistent reports that his police have boiled people alive. If his death is confirmed he will not be missed.