THE STAGES AND LOGIC OF PRIVATIZATION IN UZBEKISTAN

Shakhnoza TURAEVA


Shakhnoza Turaeva, Ph.D. (Econ.), lecturer, University of World Economics and Diplomacy (Tashkent, Uzbekistan)


Denationalization and privatization of state property is the most important area in the market reforms of the republics economy. And the main problem in transforming state enterprises is choosing the most effective methods for their privatization. During their transition to a market economy, the post-socialist countries have tried out various means and methods for reforming property relations. At first, they resorted directly to similar experience accumulated in countries with a developed market economy. But privatization, in particular in the way it is carried out in Great Britain by means of the public auctioning of shares, cannot be successful in the countries of Central and Eastern Europe, since the underlying basis of their economies is entirely different. For example, in Great Britain, a class of private owners had fully evolved by the beginning of privatization, whereas in Central and Eastern Europe such a stratum of society is still waiting to be created. In addition, without a developed market of capital and freely circulating monetary funds, privatization would drag on for several decades, reducing its effectiveness to naught.

Tactics

The uniqueness of Uzbekistans experience lies in the fact that compared with other post-Soviet countries with a transitional economy (Russia, Ukraine, Belarus, and others), the republic did not carry out privatization by means of vouchers. All the funds obtained from privatization were used to support small and medium businesses, i.e. that fertile ground on which a class of real property owners and a competitive climatethe imperative elements of civilized market relationsshould subsequently grow.

From the very first days of reform in the country, a legal foundation for denationalizing and privatizing enterprises was developed and legislatively adopted for regulating the creation and functioning of nongovernmental enterprises and organizations (joint stock, collective, private, individual, mixed, and cooperative companies), and of business and other commercial activity.

The main principles of privatization were defined as follows. First, it does not serve anyones ambitions or ideology, it is subordinated to the internal logic of the reforms, and it is their pivot. Second, since the state is the chief reformer in the republic, it means that privatization is regulated. Reform policy is being drawn up and consistently implemented on the basis of the priorities adopted, and resistance from retrogrades and conservatives is being eliminated. Third, the supremacy of the law is not violated, everyone without exception is obligated to observe the laws and normative-legal acts. Fourth, targeting is paramount, which is aimed primarily at social support of the impoverished strata of the population, taking account of the demographic situation, and gradual transfer to a system of social guarantees. The specificity of this policy was manifested during privatization of the entire state housing stock (more than one million apartments), during the granting of privileges to labor collectives (about two million people), during the privatization of industrial enterprises, livestock farms, orchards, and vineyards, and the allotment of land plots (received by three million families) for carrying out personal subsidiary farming. Fifth, privatization is being conducted rationally taking into account world experience, and gradually, without jumps and revolutionary leaps, that is, by evolutionary means. The republics own approaches to privatization and the formation of a multi-structured economy were developed and put into practice, taking into account the specifics of the country, the mentality of the people, and local customs.

The main task which must be resolved by privatization is eliminating state monopoly on land, other real estate and the means of production, in the production of goods and services, in the settlement of labor relations, in the management of branches of the national economy, as well as in the sphere of production distribution. And the main difficulty in resolving this task is preventing a landslide on the consumer market and the galloping inflation caused by it. That is, the economy must be regulated and precisely controlled throughout the entire transition period. This gives rise to the need for smooth, evolutionary, and gradual movement toward the set goal, toward a socially oriented market economy. This is required of every type of monopoly. In so doing, the following Uzbek saying acquires particular significance: Dont pull down an old house before youve built a new one.

Taking into account the special features of the republics own model of transfer to market relations, privatization and the formation of a multi-structured economy are taking place on the basis of a principled approach. Its essence lies in the following: rejecting voucher privatization; transforming state property into another form of property only by selling it to a new property owner; a programmed approach, and gradual implementation; creating and ensuring reliable social guarantees for the population during denationalization; breaking down and demonopolization of production and management structures, and forming a competitive environment.

Stages

Since the beginning of the economic reforms, the government has adopted a policy aimed at gradual and continuous privatization. Today, this process can be divided into three stages.

At the first stage (1992-1993), small enterprises and the housing stock were privatized at a minimum price. The employees of these enterprises and apartment residents mainly became the owners. During this time, 54,000 facilities were privatized, on the basis of which more than 18,000 family enterprises and 1,700 closed joint-stock companies were created, with most of their shares belonging to the enterprise employees. This stage encompassed commerce, restaurants, and public services, as well as small enterprises of local industry, construction, and transportation.

In the agrarian sector, more than 700 state farms were transformed into collective farms, cooperatives, and leasing enterprises. In addition, 15,000 farms were created with a total land area of 170,000 hectares. By the end of 1993, 35% of the GNP was produced by the nongovernmental sector of the economy, whereby the privatization of small enterprises and housing fully correlated with such an important principle of the socially oriented market economy as social support of the population.

At the second stage (1994-1995), approximately 12,000 small, medium, and large enterprises were privatized in most of the branches of the national economy, that is, the process took on mass proportions, after which the number of privatized facilities naturally declined (see Table 1).

Table 1

Privatization and Denationalization of State Property Facilities in Regions of Uzbekistan for 1992-1999.1

Regions Number of Privatized State Property Facilities
  1 stage 2 stage 1996 1997 1998 1999 Total for 1992-1999
Karakalpakstan 1,716 975 157 87 114 11 3,060
Andijan 1,826 2,234 112 81 14 21 4,288
Bukhara 2,292 637 113 88 23 21 3,174
Jizak 1,355 579 93 60 40 12 2,139
Kashkadaria 2,550 1,445 116 138 52 58 4,359
Navoi 1,029 1,408 71 39 16 36 2,599
Namangan 2,677 4,705 108 87 29 26 7,632
Samarkand 2,501 6,770 251 142 23 30 9,717
Surkhandaria 1,749 5,595 122 100 16 35 7,617
Syrdaria 754 1,818 69 53 7 58 2,759
Tashkent 2,393 6,708 190 80 31 27 9,429
Ferghana 4,313 8,024 187 63 18 26 1,2631
Khorezm 2,445 3,019 90 66 15 10 5,645
The City of Tashkent 1,246 6,243 236 147 53 77 8,002
Total for the Republic of Uzbekistan 28,846 50,160 1,915 1,231 451 448 83,051

During the second stage, four main blocks of shares were established, 25% of which were owned by the state, 25% by enterprise employees, and the rest (approximately 50%) were put up for free sale to related enterprises and foreign investors.

In 1994, the first controlling block of shares was sold to a foreign company: Fifty-one percent of the shares of the republics tobacco company were acquired by BAT Industries (Great Britain). At the end of the same year, the nongovernmental sector produced approximately half of the countrys GNP. In 1995, the privatization of medium enterprises continued, both by means of auction sales, and on the basis of tenders.

As a result of the first and second stages, at the end of 1995, more than one million people became the owners of privatized apartments, approximately two million representatives of labor collectives became share owners, and three million families received land plots totaling an area 550,000 hectares for subsidiary farming, with another 200,000 hectares going to farmers.

The republics stock exchanges created during the first two stages of privatization became an important element of the market infrastructure. For example, the real estate exchange founded in 1993 regularly held auctions at which land plots were put up for sale, as well as other real state and transportation facilities. The stock exchange created in 1994 is engaged in the sale of shares. A network of stock-exchange stores has been created where any citizen of the republic can buy enterprise shares at a nominal price for cash. In so doing, the shares in these stores are actively bought up at prices lower than the real cost, which makes them more attractive for long-term investments.

In 1996, the third privatization stage began aimed at strengthening the privatization process as a basis for forming a multi-structured economy and competitive climate. The president of the republic, Islam Karimov, noted that the goal of this stage is to complete initial privatization of state property, form a stratum of property owners, and change the structure of public production, in which the nongovernmental sector would occupy a dominating position.

Such major economic structures as Uzbeksavdo, Uzbytsoiuz, Uzstroimaterialy, and the Uzbek Postal and Communications Agency (former Ministry of Communications) are continuing their transformation. In this way, by the end of 1999, 20,700 enterprises were denationalized. On their basis, 3,700 joint-stock companies, 2,900 collective enterprises, 1,400 small private businesses, and 500 joint ventures were created. As a result, the percentage of enterprises in the nongovernmental sector of the economy amounted to 84.1% of their total number.

Medium and large enterprises were drawn into the process, including those belonging to the basic industries of the economy. In 1999, 9.1 billion sum (the countrys monetary unit) compared to 8.8 billion sum in 1998 were received from denationalization and privatization. Three hundred and fifty million sum received from denationalization were spent on the technical refurbishing and modernization of enterprises. As of 1 January, 2000, the Central Securities Depository serviced 4,700 joint-stock companies, whereby the stock issue reached 336.4 billion sum for 404.1 million shares (Table 2).

Table 2

Dynamics of the Main Indices of the Central Securities Depository2

Indices 1997 1998 1999
Number of registered joint-stock companies 4,805 4,469 4,725
Total stock issue, billion sum 168.6 211.4 336.4
Number of shares issued, million 324.7 361.4 404.1
Number of shares accepted by the depository for storage, million 185.6 297.0 371.8
Issue of shares for cash, million 11.3 13.0 13.6

At all the stages of the reforms, great emphasis was placed on developing an infrastructure for the securities market. The following areas can be noted: improving the activity of the securities market institutions aimed at drawing investments into the economy, ensuring the primary placement of securities and their circulation on the secondary market; forming a system of institutional investors for ensuring the primary placement of securities and their secondary circulation (Tables 2, 3); creating organizations for rendering new types of services to the participants on the securities market for attracting investments and placing securities.

During the implementation of state privatization programs, 88 privatization-investment foundations (PIFs) were created, which acquired the shares (taking into account granted credits) of 150 joint-stock companies for a total of more than 800 million sum. The population were sold PIF shares for a total of 219 billion sum, and more than 70,000 physical entities, the citizens of Uzbekistan, became their owners. In this way, the influence of the nongovernmental sector of the economy on the macroeconomic processes in the republics national economic complex is growing. The percentage of this sector is increasing in production of the GNP, GDP, industrial and agricultural production, construction-assembly work, transportation services, retail commodity circulation, and number of employees in the national economy.

Table 3

Dynamics of Institutional Development of the Uzbekistan Market for 1992-19993

Investment Institutions 1992-1993 1994-1995 1996-1997 1998 1999 Total
Investment brokers 35 47 192 20 6 300
Investment consultants 1 26 4 4 35
Investment companies 1 21 38 2 62
Privatization-investment foundations 83 5 88
Investment funds 2 2 2 1 7
Management companies 82 4 4 90
Clearing house 1 2 3
Depositories 3 10 5 6 24
Registrar 28 25 10 63
Nominee shareholders 1 3 2 6
Stock exchange activity 2 2
Other types of activity 6 6 2 14
Mixed activity 13 13 4 30
Total 42 93 480 74 5 724

Immense efforts are being exerted to raise the interest of joint-stock companies in their technical refurbishing, expanding the manufacture of export-oriented production, and attracting domestic and foreign investments.

Foreign investors have been sold 67 state property facilities, including 27 property complexes. Payments made by foreign investors for the enterprises and shares they acquired amounted to approximately $16 million7.5-fold more than in 1998. In so doing, the investment commitments of foreign investors amounted to $238.5 million and more than one billion sum.

Special Features of the Process

Nevertheless, it must be noted that as a result of privatization and denationalization of enterprises, as well as of the market changes, the republics economy did not gain the amount of financial resources it could have. According to the conclusions of international experts, every employee accounted for only 1,320 sum. Without reducing the role of the objective reasons for the results of the work carried out, several organizational, technological, and economic prerequisites should be mentioned which caused this situation. The organizational reasons include concentrating the functions of instructing, managing, executing and controlling the market changes in the State Property Committee (SPC). This practice showed quite convincingly that, in most cases, concentrating the functions of client and contractor in the same ministry creates conditions for all kinds of negative phenomena. The SPC essentially determined the cost of state property itself, decided to whom it should be sold and for how much, which privileges to grant, and so on, which had a direct impact on the end results. After placing essentially the entire market infrastructure under its jurisdiction, the SPC had immense possibilities for selling any facility at any price unhindered. Moreover, execution and control of the securities market are concentrated in the same structurethe Center for Coordination and Control over the Functioning of the Securities Market.

The State Property Committee does not actually manage state property, but delegates management rights to other structures without controlling the results of their work. For example, by transferring state property as a share of joint ventures, the Committee does not actually control formation of the authorized fund by foreign partners. As a result, conditions are created for various kinds of economic violations and abuse which are detrimental to the state.

The SPC is oriented toward quantity in its work. The weekly information on the allocation of funds from privatization, the sale of real estate facilities, and so on, does not reflect the qualitative side of the matter. When receiving fixed allocations from privatization sums and the sale of real estate, the Committee itself, as well as many of its structures and specialists, are not economically interested in selling state property for a high cost. Nor is the work of brokers at stock exchanges motivated by economic interest in the sale of property at a maximum yield for the state. But it is only the qualitative side of this activity that can ensure lucrative results of the reforms carried out.

The State Property Committee as the main author of various methodological documents, mainly Provisional, often approves them unilaterally. For example, in order to execute the presidential decree of 4 March, 1998 (No. -1539) On Measures for the Further Development of the Stock Market and Support of Joint-Stock Companies Created on State Property, the Provisional Procedure for Selling the Shares of Privatized Enterprises Intended for Free Sale, including to Foreign Investors was drawn up and approved on 8 April, 1998. The Provisional Procedure was sent to the Committees structural subdivisions by a written order from the State Property Committee of 8 April, 1998 (No. AA-02\14-424). By issuing yet another important normative document, the Committee was continuing the practice of superficial studying issues, without a clear idea of the end goal and mechanism for achieving it. For the main goal of selling the shares of privatized enterprises intended for free sale, including to foreign investors is not the fact of the sale itself, but extricating the republics enterprises from their extended crisis by attracting investments for reconstruction and technical refurbishing, and ensuring their stable and dynamic development on this basis.

Practical resolution of this task and developing a primary stock market should be preceded by serious work aimed at establishing the sale value of the shares. The most important element of this work is defining the market price of shares. During their primary placement, a mechanism should be stipulated which does not allow them to be sold at low prices. As practice shows, out of 187 transactions entered on the stock market during the second quarter of 1997, only two were conducted at prices higher than the offered price, 25% at the offered price, and approximately 75% at lower than the offered price. A similar situation also developed during other quarters.

The lack of sophistication of the methods chosen has led to most shares of the majority of privatized enterprises being distributed among the members of workers collectives and the state, whereas the percentage put up for free sale to domestic and foreign investors proved very insignificant. Not one side with a controlling block of shares had the real opportunity to restructure and invest in production. In this situation, the most realistic prospect would be mass bankruptcy of these enterprises, since their possibility of state support has been totally exhausted both with respect to direct investment, as well as indirectly by artificially maintaining demand for the products of these enterprises through the state order and subsidy system. In 1999 alone, economic courts declared 995 enterprises bankrupt, which was 548 more than in 1998. And a total of 1,006 bankrupt enterprises were liquidated. Their property was put up for auction for a total cost of more than 2 billion sum, and creditors were compensated for unpaid debts in an amount of 837.5 million sum. Economic courts made decisions on criminal cases instigated against 95 officials for reducing enterprises to such a state and for a negligent attitude toward their duties and abuse of their official status.

When talking about privatization, we usually place special emphasis on its quantitative aspect, and believe the transformation of more than 76,000 state enterprises into other types of property since the beginning of this process to be the greatest achievement in this area. But what has changed and how has this affected the results of these enterprises activity? Unfortunately, we must admit that in many enterprises the form of property has changed, but there has been no improvement in their financial and economic activity.

For example, out of 66 enterprises in the construction materials industry, 14 have economically failed. The main reason is that privatization was not taken to its logical conclusion, to the formation of a new efficient owner. A technical change has occurred in the form of property, but due to resistance at the level of sectoral management, from enterprise directors and administrations themselves, and sometimes due to the inability of the new owners to defend their rights, attitudes toward work and motivation have not changed. The biggest mistake is that there is no mechanism of post-privatization support of most privatized enterprises, whereby incorporated companies are essentially left on their own. The State Property Committee must carry out serious work with each specific privatized facility. A program of post-privatization support should be duly drawn up for each incorporated company that owns a share of state property. At the moment, however, it often happens that the measures adopted to correct the situation have only served to undermine businessmens trust in the conducted reforms.

Particular attention should be paid to issues relating to the use of the republics institutionalized loans (in particular, the work of the Bureau for Individual Privatization of Enterprises, which was created according to provisions of a Cabinet of Ministers resolution of 22.04.1998 (No. 170), as the projects executive structure for use of a purpose loan from the International Bank for Reconstruction and Development). Implementation of international programs is essentially not controlled. The results of the work are not properly evaluated. In the next few years, the republic is going to have to return these credits. But today, the question is not being given its due attention, and participation in the indicated programs is primarily viewed as an opportunity to earn a pretty penny for a relatively simple job.

All of this, together with the deviations from the established procedure, has led to a significant percentage of funds obtained from the sale of state property finding its way into nongovernmental structures. A large number of auctions outside the stock exchange have created a fertile ground for development of shadow structures. The unsupervised use of the states property share in many joint ventures has given foreign partners the opportunity to obtain income (frequently illegal) without investing capital. This is creating a corresponding basis for negative phenomena. The measures adopted recently to improve the activity of the SPC have still not removed or, at least, reduced the effect of the above-mentioned prerequisites which influence the end results.

Transfer to the privatization of large enterprises of the republics basic industries is stimulating the large investors, that is, foreign banks and companies, to participate in this process. Competition is mounting among them for the right to implement particular projects. In this respect, lobbyism will develop, and the striving of certain groups to resolve their financial problems, that is, the likelihood of economic violations and negative phenomena will increase. And measures must already be adopted today to keep this danger to a minimum.

The Governments Role in Privatizing Enterprises of the Economys Basic Industries

One of the leading principles of the Uzbek model of economic reforms is that during the difficult transition period, the main reformer and initiator of change is the state.

World experience demonstrates the need for state regulation of this sphere, which shows that there is no such thing as a self-regulating market as such. The state on the other hand, due to its leading role, has influenced economic processes throughout history, whereby this influence only differs in the degree of intervention: from absoluteunder the administrative and command, clan-centralized system of managementto being restricted only by the opportunities for free economic activity under developed market relations. Therefore, the contemporary socially oriented market is regulated by the state, and its various models differ only in the ratio of government to competitive regulation.

As we have already noted, the role of the state during the transition period is particularly great when many functions of the former totalitarian system have already been simplified in the newly independent post-socialist and post-Soviet countries, but new market relations have still not formed. Those already created have still not been fortified and cannot assume responsibility for all the national problems. During this time, it is very possible to lose control over the economy, it could develop spontaneously (as we can see in Russia). Therefore, the state must retain its power functions, which ensues from a high level of state control over the economy during the transition period as a consequence of the former totalitarian system.

During the transition period, the state is called upon to support the vital capacity of the national economy, primarily its basic, structure-defining industries, rendering them help in price regulation, privileged taxation and crediting, and when necessary in direct subsidization. The basic condition of transition as such is creating the legislative-legal and organizational prerequisites for forming a multi-structured economy and competitive environment. At the first stage of the market reforms in our republic, the state placed top priority on these issues in particular.

Today in the country an impressive legislative framework has been created and is functioning, which is a reliable foundation and guarantee of successful and efficient denationalization and privatization. Suffice it to say that during the reform years, more than 200 normative documents have been adoptedlaws, presidential decrees, resolutions of the Cabinet of Ministers aimed at developing and intensifying denationalization and privatization, at improving the management of state property, and at supporting business initiatives. In addition, the state is paying due attention to creating corresponding institutional structures which naturally did not exist and could not exist under the former administrative and command system. For example, according to a presidential decree (No. VII-758 of 7 February, 1994), a State Property Management and Business Support Committee (State Property Committee of the Republic of Uzbekistan) was created.

In supervising this sphere, the state is also using the program method tested in world practice. In correspondence with this, the Cabinet of Ministers drew up and in March 1994 approved the State Program for Intensifying Denationalization and Privatization in the Republic of Uzbekistan. This is a basic state document which sets forth the prospective and strategic goals of privatization. And its tactical tasks were being dealt with under sectoral and regional (territorial) privatization programs which ensued from the State Program. We will list the general requirements the mentioned programs should meet: they must be drawn up taking into account the priority areas of the State Privatization Program, they must duly include measures for protecting the environment, and they must be carried out rapidly and qualitatively, regulating the responsibility of the subdivisions and physical entities answerable for denationalization and privatization in a particular region or industry. Regional and sectoral programs included a list of specific facilities subject to transformation, as well as forecasts of the funds to be received from this.

According to the envisaged plans, at the second stage, denationalization and privatization of the basic branches of industry took place: the fuel and energy, mining, machine-building and cotton-processing complexes.

On the one hand, development of the basic industries is the main condition for ensuring the republics complete economic independence, and on the other, it is a priority area in restructuring the economy at the new stage of the reforms. On this account, President Islam Karimov noted: If we can ensure accelerated development of the basic industries and find the necessary sources of investment for this, this will create the solid foundation and favorable conditions required for dynamic development of the entire economy.4

This shows how important it is to find the sources of investment necessary for developing the basic industries, which leads right up to the question of using the funds gained from privatization. In July 1995, the Cabinet of Ministers approved the Single Procedure of Payment, Distribution, Account and Control of the Receipt and Use of Funds from Denationalization and Privatization of State Property, and the Sale of Facilities at Auctions, Tenders, and Stock-Exchange Bargaining (drawn up by the State Property Committee along with the Ministry of Finance and Central Bank). According to this document, all dividends on the states shares remain at the full disposal of the privatized enterprises and are spent on their reconstruction and technical refurbishing. This is an internal source of investment for developing the basic industries which, along with personal funds attracted by the privatization-investment foundations, constitutes a certain percentage of this investment cycle. But these funds are not enough to carry out large-scale technical refurbishing of the basic industries.

In order to achieve further development of the securities market, raise activity on the stock market of investors, including foreign, the President issued a decree (on 31 March, 1997, No. -1740) On Additional Measures to Develop the Securities Market and Expand the Participation of Foreign Investors on the Republics Stock Market. It envisages that during the formation of the authorized capital of open joint-stock companies, in which the state still has a stake, the following ratio of blocks of shares of privatized enterprises will be set: the stateno more than 25%, workers collectivesno more than 26%; for sale to foreign investorsno less than 25%; the restfor free sale. This procedure is to be in effect for one year after registration of the stock issue prospectus, after which the State Property Committee will put all unsold shares up for free sale.

According to instructions of the Cabinet of Ministers (8 September, 1997, No. 375-), a Republican Commission was formed for inventory of the actual placement of blocks of shares of privatized enterprises and their correspondence to the provision of the above-mentioned presidential decree. The Commission established that in the Uzavtotrans, Uzkhlebprodukt, and Uzryba corporations, the Uzbektrasstroi, Uzmashprom, Uzbeklegprom, Uzgoskhlopkopromsbyt, Pishcheprom, Uzmiasomolprom, Maslozhirtabakprom, and Uzoptbirzhetorg associations, and other structures, a significant number of joint-stock companies have been created in which the percentage of shares belonging to the workers collective exceeds 26%. In addition, the Commission criticized the practice by which joint-stock companies buy the blocks of shares of the workers collectives with their own circulating funds and gratuitously place shares among their employees. During the auctioning of enterprises, the dominating percentage of shares sometimes went to the workers collectives, as a result of which state enterprises were transformed, without the knowledge of the state, into collective property.

A resolution of the Cabinet of Ministers of 18 August, 1997 (No. 404) set forth the procedure for tenders to sell the shares of privatized enterprises. This kind of tender provides a way to choose a strategic investor on a competitive basis, who buys a stipulated block of shares and guarantees implementation of the project presented by him for the reconstruction, development, and financial restructuring of an enterprise.

On 18 November, 1998, the Cabinet of Ministers adopted a resolution On Measures to Stimulate Foreign Capital During the Privatization of State Property. Item 1 of this document envisaged three ways to expand investments of foreign capital: the privatization of enterprises, including the economys basic industries under individual projects; the sale of some blocks of shares of joint-stock companies on the stock and off-board markets; and the sale of enterprises manufacturing production which enjoys a stable demand on the market to foreign investors.

These measures for attracting strategic partners who will assume the financial obligations for raising the operational efficiency of enterprises made it possible for foreign investors to purchase enterprises and blocks of shares, the payments for which reached $16 million and 1.48 billion sum, and investment commitments, $238.5 million and 1.03 billion sum, respectively, which is the equivalent of $463 million.5

In order to take the privatization and auctioning of enterprises one step further and expand the participation of foreign investors in these processes, on 26 November, 1999, the Cabinet of Ministers adopted a resolution On Measures for Denationalizing and Privatizing Enterprises with the Participation of Foreign Investors in 2000-2001. It approved a list of enterprises, some of the shares of which could be sold, first, to foreign investors under individual privatization projects, second, on stock and off-board markets, and, third, to foreign investors as private property.

The state is continuing its intensive efforts to study the republics sovereign credit rating, to ensure the partial placement of the shares of several privatized enterprises which are the most attractive to investors (for example, the Almalyk Mining and Metallurgy Combine) on the international stock markets, and to establish close contacts and information exchange with the leading foreign stock markets and investment companies. Nevertheless, the current scale of participation by foreign investors on the Uzbekistan stock market, and the shares of Uzbekistan enterprises on the international stock markets cannot, in our opinion, be considered satisfactory for several reasons. First, an analysis shows that foreign investments are still not being attracted at a dynamic enough rate to the countrys stock market. Second, the republic is not practicing progressive methods for attracting foreign investments in the form of know-how, state-of-the-art management methods, the use of trademarks, and the transfer of state property to trust management by legal and physical entities. Third, the percentage of portfolio foreign investments is insignificant, the share of which in the total investment volume is currently less than 0.5%. Fourth, the infrastructure ensuring both the attraction of foreign investors to the republics securities market and the placement of the securities of Uzbek issuers among these investors on the international capital markets is still underdeveloped. Fifth, a procedure for the direct participation of non-residents on the countrys stock market has not been drawn up, nor a mechanism created which would ensure the liquidity of assets purchased by foreign investors and their dividend payment in hard currency. Nor has a system which meets international standards been set up for providing foreign investors with information.

Conclusion

The most important elements in the Uzbek model of economic reforms are denationalization and privatization, since the main condition for transferring to market relations is creating a multi-structured economy and competitive environment. In so doing, a distinguishing feature of a multi-structured economy in post-socialist countries is creating a nongovernmental sector by denationalizing and privatizing state property.

An analysis of the privatization process which began in the republic in 1992 has made it possible to identify its basic regularities and characteristics: it is subordinated to the internal logic of market reforms and is their pivot, the main reformer is the state, therefore the process is regulated, it is being carried out under supremacy of the law, whereby everyone without exception is required to observe the legislative and normative-legal acts regardless of form of property; it is targeted at providing social support of the impoverished strata of the population and gradual transfer to a system of social guarantees. Privatization is also being carried out rationally, taking into account world experience, without revolutionary leaps, that is, in an evolutionary way.

A distinguishing feature of denationalization and privatization in the republic is a programmed-targeted approach and gradual implementation of this process, it is consistent and systemic, and state (republican, sectoral, and territorial) programs have been approved and are being implemented.

During the first stage, that is, small privatization (1992-1993), enterprises from the commercial, service and local industrial spheres left state ownership. At the second stage (1994-1995), mass privatization was carried out which encompassed enterprises of the light, food, and pharmaceutical industries, construction, transportation and communication branches, as well as some basic industries of the economy. At the third stage (it began in 1996 and is still going on), the main facilities of privatizationenterprises of the basic industries of the economyare being privatized. This is related to the fact that development of the basic industries is the main condition of the republics economic independence. And only by ensuring their accelerated development and looking for the necessary sources of financing for them will it be possible to create a reliable foundation and favorable conditions for a subsequent dynamic upswing in the countrys entire economy.

Privatization is mainly being conducted by transforming state enterprises into joint-stock companies, with the controlling block of shares remaining in the states hands. Therefore, the question of sources of investment in the development of the basic industries, both during denationalization of property and during the post-privatization period, is extremely important, it requires a rapid and well-thought-out solution. But the republic should not count on foreign investments alone. Practice has shown that foreign investors will only come when we have made the necessary investments in our economy ourselves, which can serve as an internal source of investment in the development of the leading, primarily, basic industries. Therefore, we have to look for our own sources of investments for their development.

Thus, one of the main tasks at the current stage of economic reform is to create a strong mechanism for stimulating the investment activity of enterprises, primarily the basic industries. This task can be resolved by introducing a system of privileges aimed at encouraging greater investments in production, as well as stimulating the populations investment activity with the help of privatization-investment foundations, which sell the shares of privatized enterprises. This first stage is called upon to create the necessary accumulations, our own investment resources aimed at developing the basic industries. At the second stage, we can already talk seriously about attracting foreign capital, including its investment in the privatization of the republics basic industrial enterprises.


1 See: Privatizatsiia v Respublike Uzbekistan za 19911996 gody: Iubileiniy biulleten (Privatization in the Republic of Uzbekistan for 1991-1996: Anniversary Bulletin), IRITs SPC, Republic of Uzbekistan, Tashkent, 1996, 72 pages; ...for 1997, 1998, 52 pages; for 1998, 1999, 56 pages; for 1999, 2000, 73 pages.

2 The data for 1997-1998 are presented according to the VAKT National Depository Joint-Stock Company, and for 1999 according to the Central Depository.

3 See: Privatizatsiia v Respublike Uzbekistan po itogam 1999 goda (Privatization in the Republic of Uzbekistan for 1999) (quarterly bulletin), IRITs SPC, Republic of Uzbekistan, Tashkent, 2000, p. 39.

4 I.A. Karimov, Uzbekistan po puti uglublenia ekonomicheskich reform, Uzbekiston, Tashkent, 1995, pp. 214-215.

5 See: Privatizatsiia v Respublike Uzbekistan po itogam 1999 goda, p. 4.


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