March 12, 2009
I. Impact of the global financial crisis on the economy of Uzbekistan and factors that have prevented and mitigated its consequences

Today’s most urgent problem is the global financial crisis, which broke out in 2008, its impact and negative consequences, search for the ways of tackling the unfolding situation. Briefly, about the global financial crisis itself.

The crisis, that had started with failure and insolvency of mortgage lending in the United States, had its large-scale impact on liquidity crisis of the largest banks and financial institutions, and led to disastrous fall of indices and market value of the biggest companies at the world’s top stock exchanges. In its turn, this all has caused considerable production decrease, sharp deceleration of economic growth rates in many countries with all related negative consequences.

Many leading think-tanks and expert centers, analyzing and summarizing the data related to current state and possible impacts of the global financial crisis, make the following conclusions.

First, the global scale of crisis processes taking place in the financial and banking system, inevitability of recession and economic decline, cutting down of investment activity, decrease of demand and shrinking of international trade volumes, as well as considerable social losses which may well impact many countries in the world, - have found their confirmation in practice.

Second, the broken out global financial crisis has demonstrated serious shortcomings and necessity to radically reform existing world financial and banking system, proved the lack of a due control over the operations of banks, which mainly served their own corporate interests, being carried away by various speculative operations at the credit and securities markets.

Third, the scale, depth and consequences of financial and economic crisis in the certain state will to much extent depend on, primarily, the stability of its financial and currency system, capitalization and liquidity of national credit institutions, their dependency on the foreign and corporate banking structures, as well as the size of gold and currency reserves and capability to repay external loans, and finally, on the level of sustainability, diversified nature and competitiveness of national economy.

Fourth, the earliest tackling of the global financial crisis and mitigation of its consequences mostly depend on efficiency and concurrence of the adopted measures at certain national level and international level as a whole.

The November 2008 Washington G20 Summit which brought together the biggest states that represent about 85 percent of the world gross product has reaffirmed an ever growing scale of the global financial crisis.

The Summit discussions demonstrated that today the point is not about preventing, but only about seeking the ways out of the global financial crisis, i.e. the line of no return to earlier positions has been practically passed.

The discussions have also shown that the Summit participants did not have common approaches towards the analysis of reasons of the emerged crisis and therefore it is yet early to speak about elaboration of a joint effective program aimed at neutralizing serious and far-reaching consequences of the ongoing global financial crisis.

At the same time, the very fact that such a Summit was held and discussed the problems and current situation regarding the global financial crisis by itself stands as a hope-giving signal.

I believe today there is no need to prove that the level and depth of susceptibility of each country to the impact of the global financial crisis, first of all, depends on stability and reliability of financial, economic and banking systems, as well as on how strong are the protective mechanisms integrated into them.

The own model of reforming and modernization adopted in Uzbekistan, while putting forward the goal to secure our national interests in the long-term perspective has meant from the onset the denial of the methods of shock therapy, which were persistently imposed on us, as well as naïve and deceptive conceptions about the self-regulating nature of market economy.

We have chosen an evolutionary approach to the process of transition from an administrative-command to a market system of regulation, the road of gradual and phased reforms, acting in line with a well-known principle – “do not destroy the old house until you build a new one”.

And what was of a special importance, in order not to fall a prey to turmoil and chaos, we have clearly defined a principle that at a transition period it is the state that must take a responsibility of a principal reformer.

In cases when it was dictated by long-term interests of the country and necessity to resolve and tackle extraordinary situations, we have applied the methods of state regulation which finally have completely justified themselves.

Uzbekistan has created a sufficient safety factor and necessary resource basis to ensure sustainable and uninterrupted functioning of its financial, economic, budget, banking and credit system, as well as enterprises and branches of real sector.

I will just dwell upon a couple of examples.

It is not a secret that one of the most considerable components of the global financial crisis is aggravation of the problem of bank liquidity, credit market crisis, and putting it simple, the lack of money.

The total assets of commercial banks, including the provisions made up in line with the Law “On guarantees of protection of citizens’ deposits in banks”, exceed 13 trillion 360 billion soums, or are about 2,4 times more than the volume of deposits of both citizens and economic entities.

Taking into consideration the significant growth of volume of banking assets in the country, today the state gives 100-percent guarantee on all banking deposits of population.

I would like to specially dwell on the activity of the “Micro-credit Bank” set up in 2006. This bank is called upon to provide credits for small businesses and entrepreneurs, and has 78 branches and more than 270 mini-banks throughout the country.

During the last two years the total assets of the bank have increased 3,5 times. The volume of crediting the small businesses and private entrepreneurship has increased 4 times, and over 150 billion soums have been channeled for these purposes.

According to the Decree of President, the authorized fund of the “Micro-credit Bank” shall be increased by 72 billion soums and reach 150 billion soums.

The next point which I would like to speak refers to an external debt and problems of its servicing.

It ought to be said that the insufficiently considered policies of many states in terms of external borrowings have led to the situation when the economies of these countries became vulnerable and strongly dependent on external factors and threats. For over the period of independent development Uzbekistan has always been committed to the principle of denying short-term speculative loans and attracting mainly long-term foreign investments with preferential interest rates.

I would like also to note that in the course of our practice there were the facts when we refused some loan proposals to implement certain projects, in which we did not have a firm confidence and guarantees of their timely servicing.

The current state and volume of repayments of our commercial banks on external liabilities do not cause any concern. This fact also underscores that our banking system is not subject for influence of negative processes related to the global financial crisis. Uzbekistan has proved to be a reliable and solvent partner which has created practically unprecedented conditions for attracting foreign capital.

The very fact that during the last two years the volume of implemented foreign investments increased more than 2,5 times speaks much for itself.

In general, the total volume of capital investments in 2009, including foreign and domestic investments into the country’s economy, will make up not less than 25 percent of GDP.

Certainly, the aforementioned facts in no way mean that ever expanding global financial crisis shall not have its impact on our country and bypass us. This would be the most naïve and I would say an unforgivable delusion.

Each of us should realize that today Uzbekistan is an integral part of the world community and global financial and economic market. The striking evidence for this fact are as follows: our ever increasing ties with outside world; implementation of the programs on development, modernization, technical and technological re-equipment of economic sectors with an assistance of the leading developed countries; integration of Uzbekistan into international trade; growth of imports and exports of goods and commodities. It is quite natural that the global financial crisis and, in the first instance, its consequences are already affecting the development and efficiency of our economy.

Due to shrinking demand at the world market the prices for the commodities exported by Uzbekistan are decreasing, such as precious and non-ferrous metals, cotton, uranium, oil products, mineral fertilizers, and others. This, in its turn, leads to decrease of export gains by economic entities and investors, affects their income and profitability of production, and finally, the growth rates and our macroeconomic indicators.

We do have all necessary prerequisites in the country to neutralize impact of the global financial crisis and overcome its consequences. During the past period we have established a rather solid foundation of economic and financial potential of the country, created reliable mechanisms to regulate financial and banking infrastructure.

Quite recently we have adopted and are currently implementing the Decree of the President of the Republic of Uzbekistan on rendering additional assistance to banking and financial structures, supporting the business activity of enterprises and companies of the real sector of economy, increasing profitability of production and export potential, and providing with these purposes additional tax preferences and implementing along with this other large-scale measures and projects.

Availing myself of this opportunity, I would like to underscore once again.

The neutralization of consequences of ever-expanding global financial crisis obliges each of us, first of all, to realize what a serious task we face and based on that to provide full mobilization of our forces and resources.


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