New Uzbek Currency Lacks Strong Backing

TASHKENT, Uzbekistan -- Uzbekistan has announced plans to issue a new currency on July 1, but it has won no financial backing from international institutions and analysts said economic conditions were unfavorable for the move. President Islam Karimov called the new currency "sacred." He also decreed measures to protect vulnerable members of society and to encourage export-oriented firms. "The national currency, the flag, the anthem and the constitution are symbols of the state and its people and are sacred attributes of independence," the official Narodnoye Slovo paper quoted Karimov as saying at the weekend. But Western analysts said the foundations of support for the new som currency were insufficient in this import-dependent nation where inflation is far higher than bank interest rates. Istvan Szalkai, representative of the International Monetary Fund in Tashkent, said the IMF had not yet reached agreement to provide financial support for the new currency. Uzbek officials have said they were hoping for between $140 million and $160 million from the IMF to back the currency. The World Bank has also been preparing a $180 million loan, including balance-of-payments assistance. But the conditions of faster free-market reforms attached to the two loans have so far been too much for Uzbekistan to stomach. Western analysts said that without economic restructuring, the new currency of this Central Asian state of 22 million people was likely to encounter severe difficulties. An annualized inflation rate of 1,500 percent in the first four months of 1994 suggests the new currency will struggle to hold its value against the dollar. Uzbekistan runs a considerable trade deficit, a factor likely to increase demand for foreign currencies. Officials said the som, a colorful banknote depicting the architectural splendors of Samarkand, would be issued at one to 1,000 of the currency it is replacing, the som coupon. Rather than decreeing measures to tighten money supply before the launch,Karimov on Saturday unveiled a gamut of new welfare payments. A mother is to be given two minimum monthly salaries on giving birth and receive benefits for two years.Manufacturers exporting more than 30 percent of their products will have their tax bills halved. It remains to be seen whether Uzbekistan will float the new currency and thus abolish a yawning divide existing between the official rate and street-market rate of the current currency.