21 february 2017

Central Asia news

Who makes up with rate of the national currency of Uzbekistan?

25.06.2014 20:22 msk

Maria Yanovskaya

Analytics Business Interview Uzbekistan

Interview with Shermamat Abdullozoda, who held senior positions in the Ministry of Finance and the Treasury of the Republic Of Uzbekistan.

Shermamat Abdullozoda long held senior positions at the Ministry of Finance and the Treasury of the Republic of Uzbekistan. In 2004, fled the country with his family and now lives in the United States. Mr. Abdullazadeh told "Fergana" about how a rates of foreign exchange currencies (or rather, three rates) of the Uzbek currency, what kind of data used to compile the state budget of Uzbekistan and what is the mechanism of decision-making in the financial sector of the country. "I am out of the country for ten years, but I'm sure - nothing has changed. Things got worse, "- says Shermamat Abdullozoda.

- How is the course scrip? Why are three of them: the official, and the rate for the conversion of "black market"?

- This question is painful for the foreign investors, it is often asked by them. I worked as a Director of the Department of Finance of International Debt Management, and also was Director of the Department of expertise of foreign investment projects and programs at the Ministry of Finance and used to financially analyze/recalculate all investment projects that have to come to the development market of Uzbekistan. I gave finally; this project will impact whether you can give a government guarantee. We know that in all developed countries rate that is freely convertible set on the exchange and depends on supply and demand. Unfortunately, Uzbekistan Sum never been a freely convertible currency, and I think in the next twenty years there will be. In Uzbekistan, the rate is thought out in the Ministry of Finance, which oversees all financial charges, including conversion and, although it is - direct work of the Central Bank of Uzbekistan.

- What does "thought out"?

- Uzbekistan wants to presents to the international financial institutions as that it meets all the requirements of international standard. Because if suddenly the International Monetary Fund or the World Bank said that Uzbekistan does not meet these requirements, then no foreign investments will not given to the country, loans, will not invest in to the economy of Uzbekistan. Tashkent is required to demonstrate the performance of a stable economy. Therefore, all official reports indicate, yes, we are stable. 1-2 scrip can change course, but it is, in principle, should remain the same, almost the same as previous year, when Uzbekistan was audited by the IMF or World Bank. In these reports, only lies and untruth. Uzbekistan has never met the requirements of international standards; it never was and never will in the coming years.

- You want to say that the rate of scrip thought out "out of some once head?"

- Yes. You can see that in the other countries exchange rates are jumping up and down. And in Tashkent making up similar scale, chart, but a fake/artificial numbers: a little higher, a little lower ... The Ministry of Finance prepared a document (where specified course for the next day) Is transmitted to the Cabinet of Ministers, Deputy Prime Minister, who heads the economic bloc. Then forwarding its to the President's Office. And from then on Mr. Karimov reviews the numbers himself personally.

- Personally? Every time?

- Everything is under the dictation and control of Mr. Karimov personally. Sometimes saying that some of documents which supposed to be delivered to the president by some errors does not going to be delivered to him. But it's not true. Just try not to inform him if it should be brought – then immediately basement prison and so on. It's a nightmare, all this fear. If information is has to be delivered to him, it will be, there is no other options. If for some reason something does not have to reach his office - so do not go. But the course scrip - is a necessary story. And then it all will be return back to the same pattern: Karimov - Administration - Cabinet - Ministry of Finance - Central Bank. Ideally, exchange currency should not be directly subordinated to the Central Bank. But in Uzbekistan - obeys. And received the night before (or night) "New Deal" in the morning they announce rate sum, like it is the market price which is just came in a natural way, to the highest bidder. And it is not.

Shermamat Abdullozoda
Shermamat Abdullozoda, USA, April 2014.
- Вы хотите сказать, что курс сума придумывается «из головы»?- Why at night? Once a course is designed, why not do it during the workday?

- When I worked at the Ministry of Finance, where still remained a communist administration style of this unit. Karimov was also the first leader of the Communist Party of Uzbekistan, and after the collapse of the USSR, all only got worse, because it is not Uzbekistan got the freedom – but Karimov, it is him became free of his Bosses from Moscow, and he is now not under control of anyone ... And the whole bureaucratic system worked in the old Soviet style. The ministry is preparing a course scrip currency and economic management. Everything is classified as "top secret". Minister of Finance receives the document, he reviews it, spends time demonstrating his authority, returns the document back with comments or requirements. Document needs to be corrected. Then, when the Minister agrees to the proposed figure, with hope that he will not get disagreement form the higher leaders the document was send to them. And so on. Time goes and goes. Sometimes until eleven at night, sometimes until midnight we were at work. And no one gets paid for working overtime for this processing, no one could complain.

- And every day, right?

- Practically yes. And on Saturdays and Sundays, some of my co-workers also use to go to work, even if there was nothing to do. At some point I stopped going to work on Sundays. And people would come - just to show themselves. If the boss will pass, let him see what I am a patriot of this department. I hated it ... I'll tell you just one example. Once I got the command to write letter to the President regarding one of the investment projects, it was necessary to get a resolution of Karimov that he agrees for start the project. I wrote a draft letter on behalf of the Minister of Finance took it to the reception and gave to the Assistant of the Minister: it is impossible to go directly to him until you are invited. Half an hour later I received a draft of the letter back with the comments. After edits Minister I have no right to add anything of my own, everything should be exactly as was corrected by the minister. This is the final version. Well, I quickly rewrite the letter, bear the signature again, gave to the assistant and stayed in the waiting room. Brings back - with additional comments, the corrected version. No objections can be. I will not fool your head, but I spun back and forth a dozen times, and finally went back to my original version. What does this mean? He showed who's the boss. And there were a lot of situations.

- Where does the "market rate"?

- It is also set [artificially]. But stipulates that it is for those who want to buy the currency at commercial price.

To have a hard currency, country must have sufficient foreign currency reserves. Uzbekistan never had enough hard convertible currency, so there is always a limit and quota (limiting the amount that investors can convert - publ.). Ministry of Finance of the time, what I'm talking about, use to sign and submitted each month a list of organizations and enterprises (companies) that lets them convert currency - and a limit on how much they had the right to make a formal conversion. These are the companies that had obligations to the foreign investors or the banks and needs to pay the monthly payments in foreign currency. And those who were in this list could convert scrip at the official rate. But let's say Company A has a debt to the next month $ 2 million, for example. And it is given a quota of 1 million dollars. And what the company does? Million dollars buys at the official rate, and another million - the so-called "market", which is much more expensive. The company has to buy, because they must to pay to the bank. How does effects it? To rise in the cost of the project. Because the feasibility study (FS) of any investment project envisages neither black nor commercial, but only the official course "Exchange."

- The market rate also argues Karimov?

- You do not believe? Yes. Everything passes through him.

- And black rate?

- No. Commercial rate - it is belongs to the government. And black market is the one which is forms from illegally, and I would call this black market as a natural exchange market rate. I think "Black markets" course have the real exchange rate, which should appear in all the reports of the IMF and other international financial institutions.

- Ministry of Finance specifically makes quota to convert less than required by the company? To force an investors to buy the currency at a more expensive rate?

- Not enough hard currency to provide everyone. It happened that some organizations had not been given quota to convert currency at certain periods of the year. Investors who opened the joint venture, went to the Ministry of Finance, the Cabinet, asked to add them to the list of the companies for the quota to convert currency - and what this make or brought to? Bribery. When creating this list, the Ministry of Finance experts know which organizations cannot be touched, and they are given the priority, under the state minimum rate, because it is, for example, the project of Karimov's daughter, or another project belongs to someone else from the high rank of the Government etc. And some project in which there is no "wolves" may even specifically reduce the quota to strip off their cash. Very painful to recall it.

- Maybe now it's different?

- What do you mean? Now it's even worse.

- And this - the state monetary policy?

- Yes. This unwritten law of Uzbekistan’s government. I had often expressed their grievances, discontent, but my tongue - my enemy...

- What else is taken in the Ministry of Finance from the ceiling?

- Budget. Costs should not be more than the revenues...

- You want to say that the taxes...

- Yes. Ministry of Finance gives tax authorities figure they must collect. I've always wondered: how is it? The amount of collected taxes should be established objectively, for example, tax on land - should be depending on inflation. But if we do not show in reports inflation and pretend it does not exist, why is increasing the land tax (if the value of the land has not changed)? Once, I was the first deputy head of the local tax administration. Because revenues were low, I had to ask some company or/and organizations on December of current year to transfer some money into the budget, which will counts as an advance payment for the next year. You've seen this somewhere? And my superiors were forced to do it. And then, when all the money was transferred to the budget, - bravo! Budget is implemented! I read a recent report by the IMF representative in Uzbekistan and was very surprised. This woman, the IMF representative, says that Uzbekistan's economy is stable and all parameters even 10% better than last year.

- She studied official reports. How does she know how to actually do?

- Yes. There is no other way for her. But in Uzbekistan, besides, there is a style of work: checking arrives, it has a very warm welcome, and bringing to museums, treat ... They know what time the man came. And then he pulled a draft document ready: here we are written, all prepared ... I do not want to say that this IMF report was prepared by the Uzbek side. But in the offices of international organizations employees are local people, and that they can write against their own state? They through the SNB (formerly known as KGB) tomorrow will get if bad information. So they write that all is well.

- I'm confused. If the amount of taxes and the rate sum is taken from the ceiling, it also means the imminent collapse of the economy? So in fact cannot last long?

- It seems to me that the system is so complicated... While Karimov is still rules the country, it all to be continued. This is a stable equilibrium. He can convey some of his powers to the Prime Minister, in general, even he conveys all his powers - it will not change anything in Uzbekistan. He will still be in control. All these distribution of powers – is the show.

- And cash flow from migrant workers...

- Yes. They support their families as well as a supporting the development of the economy of the countries where they work. I am very sad that my Uzbek people, educated, intelligent people are forced to leave their families and go abroad, where they take any kind of job. And I am grateful to those countries and those businessmen who give them the job.

Maria Yanovskaya

International news agency "Fergana"