IMF cuts presence for lack of monetary reform

The International Monetary Fund’s (IMF) senior representative in Uzbekistan, Christoph Rosenberg, confirmed to IRIN on Wednesday that he would not be replaced when his three-year term expires in April, in protest against Tashkent’s failure to introduce a unified exchange rate. The Fund will, however, maintain contact with the Uzbek government through a liaison officer and visiting missions. Rosenberg said the step had been taken because the authorities had failed to uphold a sufficient level of cooperation with the Fund to justify its keeping a representative in Tashkent, and also because the IMF was unhappy with the government’s economic policies. Uzbek President Islam Karimov, despite repeated promises made over the years, has reneged on plans to render the Uzbek currency, the sum, convertible. The government tightly controls who gets foreign exchange and at what rate. Most people, particularly ordinary citizens, are not allowed to change domestic currency into US dollars, so they are forced to buy them on the black market, where they are traded at a premium of over 200 percent. Rosenberg told IRIN that the lack of current account convertibility was stifling economic activity in Uzbekistan. “It reduces consumer choice and satisfaction, provides opportunities for corruption, hinders competition and, by distorting proper price incentives, does not enable the country to identify the industries where it has a comparative advantage,” he said. By discouraging the inflow of foreign exchange, the currency regime makes it harder for the government to control money supply and inflation. With consumer prices increasing by 50 to 60 percent a year, living standards in Uzbekistan are falling. There were few opportunities to do legal business in Uzbekistan, especially on a small scale, and this led to unemployment, Rosenberg said. “The farmers are particularly hard hit, since they have to deliver cotton and wheat to the government at a price far below the world market level. So living standards in the countryside are particularly low,” he said. The foreign exchange regime was also to blame for the worrying trend of declining exports, low foreign direct investment, low per-capita growth and high inflation, Rosenberg told IRIN. The government had tried to address the problem by tightening restrictions further, running down its reserves and borrowing abroad, but such a process could not continue for ever, he said. Earlier, at the time of making the announcement on Monday, Rosenberg told reporters that the Fund would resume its presence as soon as the government moved forward on reform. “What we are doing is what many investors have done: reduced presence in keeping with the level of cooperation and keeping a token person there,” he said. Although the IMF did the same in downsizing its representation in Turkmenistan and Belarus, both countries remain IMF members. Uzbekistan, with 24 million inhabitants, is the most highly populated Central Asian state. The country is rich in mineral wealth and is the second largest exporter of cotton in the world.