Incoming Uzbek president offers promise of change

Incoming Uzbek president offers promise of change
In the run-up to the elections Shavkat Mirziyoyev announced a number of radical reforms.
By Nizom Khodjayev in Tashkent December 2, 2016

No one in Uzbekistan even pretends that the upcoming presidential elections on December 4 are not a formality. “[Shavkat] Mirziyoyev is our next president,” Polat, an Uzbek taxi driver in Tashkent, says without any hint of doubt. He then proceeds to praise the acting president. When asked if he intends to cast his vote for Mirziyoyev on election day, he calmly responds “no”.

As if Islam Karimov never died in September, no visible signs of change are apparent in the tightly controlled country. Very few pedestrians can be spotted in the streets of Tashkent during daytime and evening alike. Bumping into policemen, who are eager to check the contents of your bags, can seem more common than coming across civilians, who are mostly concentrated either in the Tashkent Metro subway or inside vehicles, which almost exclusively appear to be Uzbek-manufactured Chevrolet cars.

The only sign of the election are are billboards for presidential candidates scattered across the city. Three other individuals have been nominated to be president apart from Mirziyoyev, who was officially put forward by Karimov’s Uzbekistan Liberal Democratic Party (UzLiDeP). The other candidates are Sarvar Otamuratov (National Revival Democratic Party), Nariman Umarov (Justice Social Democratic Party) and Khatamjon Ketmonov (People’s Democratic Party).

“Each contestant has 642 billboards displayed across the country and equal access to 36 electronic screens to broadcast campaign messages,” an OSCE election observation mission said on November 24 in its interim report. The fantasy of a real election falls down, however, on the fact that there are no coherent political platforms from the three puppet candidates apart from vague promises, such as “family safety”, “national renewal” and “protection of socially vulnerable groups”.

Mirziyoyev’s guaranteed transition to presidency has been obvious to some both prior to and after Karimov’s death. "The power base of Mirziyoyev is determined by his proximity to the [late] president's family, as well as by the support of the all-powerful chief of the Uzbek National Security Services (SNB), the 72-year-old Rustam Inoyatov," Russian political analyst Arkady Dubnov said on his Facebook page in August.

Later speculations suggested Mirziyoyev will share his power with Inoyatov as well as with Finance Minister Rustam Azimov, as reported by bne IntelliNews in September. The rule of the triumvirate was confirmed by insider sources to Reuters in October. The anonymous sources also told Reuters that Alisher Usmanov, a Russian metals tycoon of Uzbek origin who is a major shareholder in Arsenal football club in Britain, wields influence in the new collective leadership.  

Uzbek Minister of Foreign Economic Affairs Elyor Ganiyev is also deemed to hold some sway in the ruling team, another anonymous government source told bne IntelliNews.

In the run-up to the elections over the past three months, Mirziyoyev’s team has announced a number of radical reforms, such as the decree aimed at providing legal guarantees to “drastically reduce [government] interference” in the activities of businesses. The decree is set to abolish all unscheduled inspections of activities of business entities and any counter-checking of such activities starting from 1 January 2017. Thus, regulatory authorities of Uzbekistan will be prevented from abusing their power.

The new Uzbek leader also announced a programme to provide better housing, proposed amendments to ease Uzbeks’ ability to renounce Uzbek citizenship and rehabilitated banned artists, among other positive signs.

“They’re building new homes for people living in ageing apartment buildings - surely it should mean something?” said Tatiyana, an Uzbek pensioner living in Tashkent, while her husband retracted her statement: “Probably not.”

His cynicism is not unfounded - the country, under Karimov, was notorious for announcing ambitious government programmes and never following up on them.

Most notably, in a pledge to improve Uzbekistan’s investment climate, Mirziyoyev unveiled on November 28 a plan to liberalise the country’s currency market.

Empty promises

The plan proposes to install a floating exchange rate “in line with market mechanisms”. This could potentially bring an end to the country’s dual exchange rate regime, which allows the Uzbek elites in control of the import-export market to profit from exploiting the difference between the two rates. As of November 30, the sum’s official government rate is set at UZS3,176.2 against the greenback, while the Uzbek currency is traded at UZS6,800 to the dollar on the black market.

Whether reforms will be sufficient to rid the country of its black market, is still unclear. However, Uzbek government sources told bne Intellinews in mid-November that “within one or two months the central bank will have a new programme to remove the dual exchange system”, suggesting the plans are not merely empty promises to ramp up Mirziyoyev’s popularity in the run up to the presidential elections, which will be held on December 4.

“There’s no official confirmation that change is coming, but there is optimism in the business community,” a representative of a group of foreign businesses in Uzbekistan told bne IntelliNews prior to the official announcement of the plan.

The control over the the black market is rumoured to be partly under the Inoyatov-headed SNB. As such, SNB’s interests could play a significant role in determining the outcome of the proposed reforms.

A more significant factor determining the viability of the currency reform is Mirziyoyev’s willingness to reveal the country’s real rate of inflation. The de facto devaluation of the national currency at the black market rate has fed inflation in the country during the economic downturn in Central Asia and Russia. Double-digit price rises have hit even the official government-set prices. For example, in January the Uzbek Finance Ministry and State Tax Committee officially increased the wholesale and retail prices of alcoholic beverages by 14-28%, reflecting the state of inflation in the country.

Another example of rampant inflation can be observed in the 35% hike in government-set fuel prices in October. The move was supposedly aimed at combating “smugglers”, who bought cheap Tashkent fuel to re-sell it at higher prices in other regions of Uzbekistan. Such intentions are questionable. The authorities’ own admission of the price disparity indirectly proves prior statements by independent Uzbek analyst Alisher Taksanov, who told bne IntelliNews that domestic production was insufficient to meet the internal demand for fuel.

“Uzbekistan produces 1.3mn tonnes of petrol fuel and 258,000 tonnes of liquefied gas, 260,000 tonnes of lubricating oil, but this is clearly not enough to fuel 3.6mn units of vehicles and agricultural machinery,” Taksanov said.

The resulting deficit has given rise to smuggling, since the decline in global oil prices “has provided a higher profit margin for the smugglers”, which led petrol fuel prices on the black market to “increase by 150% or more” above the government-set retail price, Taksanov noted. The government itself mentioned that smuggled fuel prices reached UZS5,000, when official prices stood between UZS2,000-UZS2,500. The newly set prices of UZS3,000-UZS3,300 hardly seem to reflect the country’s real rate of inflation.

Evidence of double and triple digit inflation raises doubts about the Uzbek government’s projected inflation of 5.5%-6.5% for 2016 or even the International Monetary Fund’s 8.4% inflation projection for this year. Moreover, high inflation implies the Uzbek economy might be shrinking or slowing down as opposed to 7%-9% growth recorded by the government in the past decade. The 8% average is used by the government as a selling point that promises stability for foreign investors - a selling point, which the government is not yet ready to abandon.

“Have you paid attention to our economic indicators? To our stability in the last 12 years?” Ganiyev asked rhetorically during a meeting with a British business delegation in Tashkent in November. “[If you look at] our neighbours, for whom [financial] crises are common, they have experienced a double devaluation of currency,” Ganiyev added.

A continued facade almost makes it obligatory to maintain a “stable” government set currency rate, unless Mirziyoyev finds a way to address Uzbekistan’s inflation woes.

On the upside for foreign investors, Mirziyoyev’s liberalisation plan also promises exporters freedom from obligatory selling of all their foreign currency revenues at the official central bank-set rates. The government source told bne IntelliNews that “any new company will be freed from currency conversion” and that freedom “could be prolonged if the company decides to reinvest”. That would allow authorities to maintain official rates, while providing foreign companies with the benefits of the black market rate.