Microsoft Word econ 2004 16. doc

Figure 2. Comparison of T-bills rates profitability with inflation and currency 
depreciation rates. 
Source: EBRD (1997-2000) 
An additional debt instrument available for the public is a certificate of deposit of 
the banks. They have been in issue since 1995 and are relatively reliable and 
profitable financial instruments. As it is possible to claim repayment before 
maturity, they are also relatively liquid instruments too. For commercial banks 
they represent another method of attracting resources from the public.

---

28
According to the rules set by the Central Bank, two types of deposit certificates are 
being issued: a one-year term deposit certificate available to legal entities and a 
three-year term deposit (savings) certificates available to individuals only. Explicit 
restriction to free circulation of such securities between enterprises and individuals 
reflects the authorities’ concern with cash and non-cash transactions as well as an 
attempt to reduce inflation by freezing up cash holdings in the form of deposit 
certificates. 
In recent years there has been some activity on the corporate bonds market, as 
regulatory changes removed restrictions on the size of corporate bond issues. The 
major impetus to this was given by newly established international syndicate, 
consisting of 19 local and foreign banks and one NBFI, Carthill Asset 
Management Company. This syndicate began to develop a secondary corporate 
bond market in April, 2002 and has thus far organised dozens of bond issues worth 
more than UZS 6 billion. Recently a couple of larger banks, “UzJilSberBank” and 
NBU, started to develop similar services for their corporate clients. This is good 
option for the banks to keep their excess liquidity since most of the issues offer 
competitive interest rates. However, there are significant constraints in the 
development of the market. Perhaps the most important impediment is the small 
number of companies through which bonds would be demanded on the market. 
Another important constraint is the weak business environment in Uzbekistan in 

---

29
general that does not encourage businesses to expand their activity. Moreover, 
investor protection concerns have been raised based on the inadequacy of financial 
disclosure and the absence of an independent and credible credit rating agency.
Equity market 
From 1994 to 1996, the development of the stock exchange took place alongside 
the development of the market economy, including the privatisation and de-
monopolisation process. 
In Uzbekistan, it was announced that the gradual approach to structural reform 
would be adopted (Karimov, 1995). In line with it, the pace of privatisation has 
thus far been rather slow. Privatisation has been taken place in three stages. The 
first stage concentrated on housing units and small enterprises, mainly in the 
service sector, and was largely completed by 1995, with 90 percent of small 
enterprises being privatised. The second stage, which involved the creation of 
privatisation investment funds, began in late 1996 and is still being implemented. 
These privately owned funds purchased shares in selected medium- and large - 
scale enterprises. In turn, the public was able to purchase shares in the funds. The 
third stage, a case-by-case privatisation of large enterprises, began in 1998 but 
with limited results. 

---

30
Today, the market for the shares of privatised enterprises is still small in terms of 
quantity, variety, and volume of transactions
 
(see Table 3) conducted through the 
stock exchange. The slow pace of privatisation, as well as approach chosen for 
privatisation, has negatively influenced activity in equity market of Uzbekistan. 
Shares have simply been distributed among the companies themselves (in the form 
of bonuses), to selected foreign investors, outside shareholders, and to the state. 
Investors, who obtained shares in this way, had neither any real incentive nor any 
real opportunities to trade these securities. The low interest of potential investors 
in equities also reflects the absence of reliable information about the issuers of 
shares and the subsequent high risk of such investments. The situation was 
worsened by poor legislative support and a lack of knowledge and skills both by 
market participants themselves and the population of the country in general.
In the first case the situation was such, that until late 1996 the only two laws 
existed, which were “On Securities and Stock Market” and “On Economic 
Societies”. The regulations issued by the various regulatory bodies often contain 
obscure and even contradictory passages that complicated the functioning of the 
market. More recent legislation (the laws “On the Mechanism of Security Market 
Functioning” and “On Joint Stock Societies and Protection of Shareholders’ 
Rights”) has somewhat improved the situation, but not entirely. The most urgent 
improvements needed are definition as to the regulation of some types of 

---

31
professional participants’ activity, as well as removal of contradictions present in 
legal and regulatory documents. As at 1st May, 2000 the regulatory documents can 
be summarised as follows: 9 Laws, 11 Presidential Decrees, and 31 Orders of 
Resolutions of the Cabinet of Ministers of the Republic of Uzbekistan are in place. 
The Republic’s Stock Exchange “Tashkent” (RSET) – the only stock 
exchange in Uzbekistan – was established in January 1994. Since its 
establishment, activity has been mainly connected with servicing new issues of 
securities as part of the privatisation process. The volume of transactions on 
secondary market has been increasing, but the pace was rather slow. This was 
caused by a number of factors: (i) absence of reliable assessment of companies’ 
performances whose securities are traded; (ii) low trust and knowledge of potential 
shareholders in stock market; (iii) failure by most joint-stock companies to pay 
reasonable dividends; and (iv) investors who own securities of well-performing 
companies prefer to hold securities rather than trade them. Since 2000, RSET 
started to calculate share index called “Tasix” (see
Figure 3). As volumes of trades and share prices remain volatile, the fluctuations 
of the index are extremely high.

---

32