Uzbekistan: Central Bank nearly insolvent, according to insider

One of the deputy chairman of the Central Bank of Uzbekistan published a letter to Prime Minister Shavkat Mirziyaev that the country is suffering from a lack of “traceable” funds – the letter details a low level of confidence in the Uzbek currency, the som, which is prompting most businesses and individuals to rely only on cash traded as other, more stable stores of value like the dollar. Mustafaev said that more ATM’s are needed in the country, as well as requirements that companies pay their employees electronically so as to increase bank reserves and boost loans for mortgages and durable goods.

Despite the recommendations, the insider remained skeptical the measures would solve Uzbekistan’s monetary supply problems. Even among government employees, Mustafaev said that banks were unable to pay about 58 billion soms in pensions and 54 billion soms in salaries to Interior Ministry and Defense Ministry workers. The most interesting part of the report says that the Uzbek government has taken out loans from “insurance funds” to pay government salaries on April 2 – meaning that the Treasury’s lack of cash might portend a future solvency crisis.

Mustafaev blamed Uzbek citizens for wanting to keep their money in dollars, and for refusing en masse to pay utility bills, noting that the total outstanding public debt for utility bills was some 6.1 trillion soms, or $2.5 billion dollars.

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News Briefs:

  • Two top US diplomats are currently in Moscow for talks to speak once again about the situation in Ukraine and Syria. US Assistant Secretary of State for Europe Victoria Nuland met with Russian officials to discuss the Minsk II Accords in Ukraine and to guarantee compliance to the arrangement. Separately, US special envoy for Syria Daniel Rubenstein met with Russian Deputy Foreign Minister Mikhail Bogdanov about the political transition in Syria. No agreements were announced.
  • The European Union has announced that Russia has dropped opposition for a Ukraine-EU Association agreement, a landmark arrangement that was originally opposed vehemently in Moscow back in late 2013, and whose abandonment sparked the Maidan protests and the current civil war. Russia had originally stated that the officially named “EU-Ukraine Deep and Comprehensive Free trade Agreement” would damage its own economic ties and interests in Ukraine. The deal will once again be available for government review starting in 2016.
  • The European Bank of Reconstruction and Development predicted 3% GDP growth this year in Kyrgyzstan, despite the report’s contentions that fall in remittances from Russia, increased worker migration back to Kyrgyzstan, a fall in the value of the ruble and slower growth in Kazakhstan has caused most, like the IMF and World Bank, to cut forecasts for the Central Asian economy.
  • Ukrainian government sovereign debt private bondholders were named in an official statement released yesterday. The holders are institutional investment firms T. Rowe Price, TCW Group, BTG Pactual, and Franklin Templeton Investments, currently in the midst of a massive negotiation on avoiding a haircut on roughly $8.9 billion in holdings. The committee the four groups formed in March said it would be against any reduction in the value of the bonds they hold, but the creditors are running out of time. The IMF announced that in order to receive its bailout package of $17.5 billion, creditors and government officials would have to have completed their deal by mid-June.
  • Turkmenistan has granted amnesty to some 1,200 political prisoners, part of Berdimuhamedow’s supposedly regular practice of releasing prisoners who had “sincerely repented.” More likely is that these releases were prompted by the visits to Slovenia and Austria last week, where likely stipulations on human rights progress were a threshold for working with the European Union on supplying gas to their economy.
  • A Russian Proton rocket launch failed in the Baikonur Cosmodrome of Kazakhstan yesterday. This marks the third failed launch in 3 years – but the satellite it was launching was destroyed in the crash. Some 10 percent of Proton-M rocket launches have failed, and Kazakh citizens have organized environmental protests against the continued use of the rockets, which utilize a toxic fuel that apparently poisons the surrounding environment and groundwater.
  • Dutch oil major Royal Dutch Shell announced that it would probably need to divest its stake in a Kazakh gas field. The announcement was discovered in the huge annual report detailing BG Group’s merger with Shell and the deal stipulated that in the event of a change in BG Group’s ownership, the Kazakh government would reserve the right to buy back its stake in a natural gas field called Karachaganak, accounting for 15% of BG’s total production volume and some $19 billion in revenue. The Kazakh government has not made any announcement just yet – but utilizing its “pre-emption rights” over natural resources would certainly increase the amount of liquid cash coming into government coffers. No comments have been made officially about the matter yet.
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