Cash crunch causing retail gridlock in Uzbekistan

A summer-long shortage of cash in Uzbekistan’s portion of the Ferghana Valley shows no signs of abating, and the phenomenon appears to be spreading to other parts of the Central Asian nation, the figures showed.

Wage arrears and an ill-thought-out scheme to pay state salaries and pension payments by electronic credits to debit cards are crippling the national economy, observers say. The intent of the administrative moves was to stem inflation and keep a lid on foreign-exchange rates. But the manipulation of the money supply is also having serious side effects, in particular profiteering by unscrupulous entrepreneurs who are gouging desperate consumers.

Some frustrated residents have started a letter-writing campaign, seeking to highlight the problem in local newspapers. But few have any expectation that authorities will address their complaints, sources told EurasiaNet.

"In most of the villages of Uzbekistan, people haven’t seen cash for ages. They get paid with oil or grain instead of money. There are some cases in the villages where plastic cardholders go to the store and the store doesn’t have an ATM, but they have to buy goods anyway," one Tashkent-based observer said. "So, what they do is buy groceries from the store, but they leave their cards and passwords with the shop owner and they, in turn, do whatever they want with it. People are certainly very tired of the situation but there’s not much they can do.”

Since independence, the Uzbek government has stated that it is committed to a gradual transition to a market-based economy. The progress with economic policy reforms has been cautious, but cumulatively Uzbekistan has registered respectable achievements. The government has eliminated the gap between the black market and official exchange rate by successfully introducing convertibility of the national currency, but its restrictive trade regime and generally interventionist policies continue to have a negative effect on the economy.

Remaining restrictions on currency conversion capacity and other government measures to control economic activity, including the implementation of severe import restrictions and sporadic closures of Uzbekistan's borders with neighboring Kazakhstan, Kyrgyzstan, and Tajikistan have led international lending organizations to suspend or scale back credits.

Fees paid in coins

In order to cover up the cash shortage, the government is already transferring ever-more payments to debit cards. Even then, however, only 30-50 percent of the amount owed to state employees and pensioners is being deposited in cardholders’ accounts.

"A while ago, a number of citizens wrote a letter to a state-owned newspaper asking the Central Bank to explain what’s happening," the Tashkent source said. "The bank replied by writing an article that didn’t explain anything and didn’t really recognize the problem. On top of that, they [officials] announced that soon there will be more than 1 million plastic cards issued and 14,000 ATMs placed all over Uzbekistan."

In the Ferghana Valley, state-affiliated banks are now making payments in coins, not notes, according to local media reports. This is creating havoc for shoppers and shop owners alike. Some Uzbeks say “specie-nomics” is causing retail gridlock.

"My pension is 124,000 soum [$80], and in April I was given 67,000 soum ($44) in coins. I went to the shop to buy 3 kilogram of sugar [costing about $3.50], but when they saw I had coins in my hands they refused give me the sugar. The asked me for normal money," a retiree told the news Web site Uzmetronom.com, a fierce critic of President Islam Karimov’s administration.

The coins come in dominations of 1, 5, 10 and 25 soums. Even the largest denominated coin is not enough to buy basic goods and services: a box of matches, for example, costs 30-35 soums, and the cheapest fare on public transport is at least 300 soums. Buying groceries requires sacks of coins, and paying this way creates lengthy delays, as clerks must count and recount a large number of coins to complete purchases.

Minibus drivers will refuse to let a passenger board if the passenger seems intent on paying the fare with coins. Often, drivers will avoid the embarrassment of denying entry to a known coin carrier by simply not stopping for a pick-up.

Drivers say they have no choice but to behave in such a way, citing the fact that it is impossible to buy gasoline with coins, Uzmetronom.com reported. A source working in an unnamed bank told the Web site the situation is not likely to improve in the near future. "People should be happy they have coins. Soon there’ll be nothing," a bank employee is quoted as saying.

Some however are able to profit from the situation with moneychangers taking rolls of coins at 5 percent less that their actual value in exchange for paper money.