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Uzbekistan continues cautious liberalization of currency regime

The government of Uzbekistan has taken two more steps towards liberalizing the country's harsh currency controls. As mentioned in Baker & McKenzie's recent article on currency liberalization in IFLR (June 2000), this process began on May 1, the effective date of a resolution which combined the country's two official exchange rates into one unified rate. Two additional resolutions became effective on July 1 which continue this process of reform. The impact and scope of these new resolutions are very modest. However they provide the first instances (albeit exceptionally limited instances) in which Uzbekistan's local currency, the som, may be converted into and from hard currency at approximately a market rate. The fact that the government has adopted these resolutions appears to demonstrate seriousness in gradually fulfilling its promises to liberalize the country's currency regime.

Resolution No 245

Under the first of the two July resolutions (Resolution No 245), the government approves a proposal providing for banks to purchase (but not sell) hard currency from their customers on a contractual basis at a free exchange rate. While this will not help investors who have som income from their Uzbek operations, it will be useful to those companies which do not have som income but nevertheless have som expenses (eg representative offices of foreign companies) since they can now legally purchase som at a free exchange rate.

Separately, it approves a proposal providing for the conversion into hard currency of som proceeds from the sale of imported consumer goods at a free exchange rate. However, the importer must be doing business for at least six months and must hold a conversion licence from the Central Bank. The requirement of a Central Bank licence will limit the applicability of this resolution, since the process of obtaining a licence is difficult and can be subject to significant discretion by the authorities. The applicability of this provision to import proceeds is somewhat surprising in light of Uzbekistan's rigid policy of promoting exports and import-substituting production. It appears to be implicit recognition that the country's present currency controls have seriously hampered the country's ability to import many needed goods. Notably, this resolution provides no relief for the country's exporters, who remain subject to a requirement to convert 50% of their export revenues into som at the official exchange rate.

Another significant change made by Resolution No 245 is that it now limits the amount of advance payments which may be made under import contracts. Like several other Commonwealth of Independent States (CIS) countries, Uzbekistan has attempted to prevent capital flight by limiting the amount of advance payments under such contracts. Uzbekistan has limited such payments to 15% of the contract price. That percentage is unchanged by Resolution No 245, but the resolution now imposes an aggregate cap of $100,000 on any advance payment.

Resolution No 250

The second of the two July resolutions (Resolution No 250) applies only to individuals, not legal entities. It distinguishes between residents of Uzbekistan and non-residents. Under this resolution, four local banks, each of which is 100% Uzbek owned, are authorized to set up currency exchange booths for both the sale and purchase of cash hard currency at the free exchange rate determined by the supply and demand of hard currency. Other banks may only purchase (not sell) hard currency, also at the free rate.

Residents may purchase up to $300 at these exchange booths, at the free rate, for trips abroad. They must present a passport, a visa from a foreign country (other than CIS countries) and a ticket for travel to that foreign country. This resolution also states that residents travelling abroad now may take out $5,000 without any additional approvals. Previously this amount was limited to $1,500.

Non-residents may purchase only the amount of hard currency that they previously exchanged into som at an exchange booth. They must present the receipt for the earlier exchange. For example, when a tourist converts $1,000 into som upon arrival in Uzbekistan, but then spends only $800, he now may reconvert the balance of his som back into $200 when he leaves. Previously, none of the country's exchange booths would convert som into hard currency under any circumstances.

Both of the resolutions which became effective on July 1 contain a number of uncertainties and ambiguities. The government is expected to promulgate clarifying legislation in the near future.

Baker & McKenzie
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