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36 PROBLEMS OF ECONOMIC TRANSITION
ternational loans and soft credits. Although it is probable that more
transparent accounting practice may yet signal an ever-increasing
proportion of nonperforming loans, with a capital adequacy ratio of
more than 20 percent (IMF, 2008, p. 18) the banking sector seems
to be adequately prepared for this challenge.
Arguably, in the early days after the independence, the Uzbek
government’s policy of not dismantling the old-style monetary man-
agement was prompted by the need to prevent the economy from
experiencing any dramatic reduction in output and employment.
However, the Uzbek government now has the most ideal conditions
to introduce reforms of the banking sector to make this sector develop
in order to help Uzbekistan transform into a proper free market-based
economy. After all, the country needs the market-oriented banking
sector so that it can use its scarce resources more efficiently.
Notes
1. On this, the World Bank observed the following: “Uzbekistan defines an
unusually broad range of information on economic and social development—
with no clear threat to national security—as secret. Data in such areas as
macroeconomic performance, fiscal policy, banking and monetary statistics,
foreign trade, debt, and poverty levels—publicly available in most countries of
the world—continue to be subject to secrecy provisions or limited circulation in
Uzbekistan” (2003, p. 19).
2. For an overall picture of the Uzbek economy since 1991, see Ruziev,
Ghosh, and Dow (2007).
3. The indicator provides a ranking of liberalization and institutional reform
in the banking sector on a scale of 1 to 4+. A score of 1 represents little or no
change from a socialist banking system, except for the formal establishment of
two-tier banking system. A score of 2 indicates establishment of internal currency
convertibility and significant liberalization of interest rates and credit allocation.
A score of 3 means that a country has made significant progress in developing
prudential regulation and supervision, and hardening budget constraints on banks.
A score of 4+ signifies a banking standard typical of an industrialized market
economy, represented, for instance, by the Basel Committee’s Core Principles
on Effective Banking Supervision and Regulation (EBRD, 2000, 2004).
4. In some advanced countries such as Australia, Canada, Denmark, Finland,
the Netherlands, New Zealand, and Sweden the largest five banks control more
than 80 percent of the market (Cetorelli and Gambara, 2001, p. 625).
5. Because banks play such a vital role in market economies, banking sector
assets exceed national output in most advanced countries. For example, bank as-
sets were more than one and a half times the size of national output in France and
jUNE 2009 37
Japan, and about twice the size of national output in Germany in 2003. In the UK,
the ratio of bank assets to national output was even greater—about three times the
size of the national output. Transition countries still lag far behind in this respect.
The notable exception is the Czech Republic, where bank assets were about to
exceed GDP in 2003. After initial decline, bank assets have steadily increased in
Russia, Ukraine, and Kazakhstan recently. In Kazakhstan the ratio of bank assets
to GDP increased from about 9 percent in 1996 to about 40 percent in 2003. Russia
and Ukraine are about to reach similar levels of bank assets to GDP.
6. Nevertheless, the evidence suggests that of an inconsistent gradualism
(Pomfret, 2000).
7. When we observe analogous indicators for several of the largest banks,
we find very similar results. For instance, the share of corporate deposits in total
deposits for the NBU was 82 percent; for Promstroibank—70 percent; Asaka
Bank—74 percent; Tadbirkorbank—74 percent; Xalq Bank—81 percent; and
for Turonbank—76 percent. The data refer to 2003 except for Xalq Bank and
Turonbank, whose data refer to 2002 and 2001, respectively, and come from the
annual reports of these banks.
8. The method and design of the organization and sampling of interviews was
based on “networking” as in Bewley (1995). The essence of this method is that it
enables an interviewer to work with respondents sampled through the network of
connections. The main strength of this method is that, because the interviewer is not
a complete stranger or an outsider to the network, respondents will be less suspicious
and anxious and hence are more likely to reveal more sensitive and personalized
information than that obtained through conventional random sampling. Further
details and other related aspects of interviews are available upon request.
9. For details see, among others, the Decree of the President of the Republic
of Uzbekistan dated February 4, 1998, “On Measures to Improve Mechanisms of
Settlements and Stimulation of Payments to Central and Local Budgets.”
10. For details see the Instruction of the CBU “On Organizing Cash Flows of
Enterprises,” registered with the Ministry of Justice as of December 10, 1998,
and amendments of October 27, 2001, and July 18, 2002.
11. For details see, among others, (a) the Resolution of the Cabinet of Ministers
no. 280 dated August 5, 2002, “On Measures to Decrease Further the Circulation
of Cash Money Outside the Banking Sector,” (b) the Resolution of the Cabinet of
Ministers no. 63 dated February 4, 2003, “On Measures to Improve Mechanisms
of Regulating Monetary-Credit Indicators,” and (c) the Decree of the President
of the Republic of Uzbekistan dated August 5, 2005, “On Guaranteeing Uninter-
rupted Payment of Cash Money from Deposit Accounts Held in Banks.”
12. Indeed, during interviews, bankers said that despite the adoption of these
decrees and resolutions on ending the cash plan, the problem remains the same.
“When it comes to the control of the cash money in circulation, what the regu-
lations changed is just to replace the words ‘control’ with the word ‘forecast.’
Essentially, however, nothing has changed,” said one of the branch managers
during the interview.
13. See among others the Resolution of the Cabinet of Ministers no. 264 dated
June 22, 2001, “On Additional Measures to Improve the Circulation Cash Money
and to Increase Responsibilities of Commercial Banks” and the Resolution of the
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