Associated Press
October 8

Uzbekistan's government said Wednesday it would lift restrictions on foreign currency transactions, a long-awaited move aimed at opening the most populous country in Central Asia to greater foreign investment.

Businessmen reacted with skepticism.

"From today, all remaining restrictions on currency transactions have been lifted," Deputy Prime Minister Rustam Azimov told reporters at a joint news conference with visiting head of the International Monetary Fund mission to the country, J. Erik De Vrijer.

Azimov said the former Soviet republic will next Wednesday formally sign Article 8 of the IMF charter, requiring members to guarantee free convertibility of their currencies.

Uzbekistan, which has extensive mineral reserves and is a major cotton producer, saw a brief economic boom in early 1990s. But the government's ban in 1996 on free currency transactions and restrictive economic policies have stifled budding private business and driven foreign investors away.

The IMF withdrew its representative from Uzbekistan in 2001 due to frustration over the government's reluctance to liberalize the economy. It returned last year under strong pressure from the United States, which has become a strategic ally of Uzbekistan.

The main dispute has been over the Uzbek government's reluctance to allow convertibility of the national currency, the som, a practice that has encouraged a black market in currency trading.

The IMF's De Vrijer on Wednesday called the currency reform an important move, "but not the only step needed to make a transition to a working market economy."

He urged the Uzbek government to improve the business climate, reduce state control, ease trade restrictions and ensure the rule of law. He also said authorities should meet obligations on pensions and wages.

Business leaders, who have weathered years of unmet promises from Uzbek officials about currency convertibility, want to see results.

"Uzbekistan can now say that 'we have signed the protocol,' but history will judge it very harshly if it does not follow it up with further reforms," said Charles Rudd, chairman of the Small and Medium Enterprise Committee of the American Chamber of Commerce in Tashkent.

Rudd also expressed concern the government would hold back paying salaries at state-run enterprises to bolster the currency. In August, thousands of factory in the country's east protested after not being paid for six months.

Vadet Zaim, a Turkish businessman who runs a textile business in Uzbekistan, said lifting restrictions on currency operations would make business easier and be a step toward building confidence in the local banking system. But he was also cautious: "We all know that when this government allows something, it comes with a lot of new restrictions."

---