Central Banking Technical Assistance to Countries in Transition

Statement of the Central Bank of the Republic of Uzbekistan

Susana Almuina, Ian McCarthy, Gabriel Sensenbrenner, and Justin Zulu
Published Date:
December 1995
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It is common knowledge that after the dissolution of the Soviet Union the majority of the republics did not at once begin to implement fully independent monetary, foreign exchange, and fiscal policies. Nevertheless, in view of a gradual separation of monetary systems and the introduction of national currencies, the central banks of the Baltic countries, Russia, and other countries of the former Soviet Union faced a wide range of emerging issues. The successful resolution of these issues required the involvement of new ideas and people capable of ushering them in.

This is the reason why we pay a great deal of attention to training personnel in line with the challenges involved, because before Uzbekistan gained independence we did not have sufficient resources trained in such areas as monetary and foreign exchange policy management and banking supervision. In these areas we find support on the part of our foreign partners and the IMF.

Central Bank officers have attended courses at foreign banks and training facilities, including the Joint Vienna Institute, where they had the opportunity to get insights on new ideas in economics and get acquainted with their counterparts from other countries and share their experiences. Having visited some of the world’s leading banks and major trading floors, officers of our bank are better able to tackle the issues facing them. Furthermore, the Central Bank itself underwent major restructuring. Its chart of organization no longer includes specialized units that were formerly responsible for issuing credits to specific sectors of the economy. New units were set up to cover such areas as compilation of statistical data, banking supervision, and the monitoring of foreign debt. Also, Uzbekistan is from time to time visited by IMF missions that look into our problems on site and offer us extensive advice. I would like to brief the participants on some of the IMF recommendations that our bank was able to implement.

Monetary Policy

At present, it is anticipated that a significant share of Central Bank credits will be distributed through the credit auction facility. Credit auctions are held once a week. Soon the Central Bank of Uzbekistan refinance rate will be brought in line with the market rates based on the credit auctions. The Bank has stopped issuing credits at concessional interest rates. Moreover, the Central Bank is planning to hold monthly auctions of three-month government bonds and set up an efficient secondary market. The emerging government securities market will in particular help to finance the budget from a noninflationary source (by attracting financial resources from the market). This will provide the market operators with a reliable and liquid means of investing financial resources on a short-term basis which will compete with the existing commercial financial instruments.

Payments System

In 1991 basically all the operations of the former U.S.S.R. Gosbank involved processing of paper documents while computerization and automation of payments processing operations were nonexistent. Once the volume of transactions and their centralization increased, this brought about unjustified delays in processing of payments. That is why we introduced electronic data exchange between regional Central Bank offices, bringing about increased efficiency. We have also developed new standard operating procedures for processing transactions. We have designed a long-term plan for computerizing the overall Central Bank framework, which envisages the introduction of up-to-date telecommunications facilities such as optical fiber technology. Last year the World Bank granted to Uzbekistan an Institutional Development Loan. One of the facilities involved under this loan is intended for enhancing the financial infrastructure, of which US$5.5 million will go toward modernizing the existing payments system. It should be stressed that all the activities aimed at reforming the payments system are coordinated within the overall framework of the computerization effort. By the end of this year we intend to achieve complete automation of data exchange between regional offices of the Central Bank.

Foreign Exchange Policy

As I mentioned earlier, our contacts with foreign banks also involve training of bank officers to operate in a market-oriented environment. We are in the final stages of elaborating a foreign exchange regulations framework.

The regulations drafted by the Central Bank include the following: purchases and sales of foreign currency undertaken by corporations and consumers; the operations of the domestic foreign exchange market in Uzbekistan; transactions involving foreign exchange; procedures for the incorporation, registration and accreditation of foreign banks in Uzbekistan; procedures for operating foreign currency bank accounts of resident and nonresident corporations and households; foreign exchange lending operations; procedures regulating the export, import and other transfers of foreign exchange assets by residents and nonresidents; regulations regarding collection; and cashier and accounting practices involving foreign exchange. The Central Bank has issued 40 regulations with respect to foreign exchange transactions.

To ensure the sound financial positions of banks, safeguarding the interest of the borrowers and lenders, the Central Bank has introduced maximum foreign exchange exposure requirements by stipulating that at the end of each business day the open foreign exchange position of a bank should not exceed 20 percent of its capital. Authorized banks are also required to report on a monthly basis on how they manage their foreign exchange position.

With the assistance of the World Bank, the Central Bank drafted a Foreign Borrowings Law, which will cover such issues as borrowing by residents from abroad, government guarantees of foreign borrowings by residents, and reporting procedures for borrowers. The draft law has undergone preliminary review by the Cabinet of Ministers and is currently being revised to incorporate amendments suggested by other government agencies. The law is expected to enter into force on January 1, 1995.

The Department of Exchange Regulation and Foreign Affairs also monitors lending arrangements between residents and nonresidents and foreign debt servicing operations. Once the national currency is introduced, this department will also manage the foreign debt of the government, while the Dealing Operations Section will manage its foreign assets.

Banking Supervision

One of the IMF recommendations was to introduce a minimum capital requirement for commercial banks in line with current prices and rates of inflation. In July 1993 this requirement was set at 100 million rubles. By midsummer this amount will be raised to 1 billion sum-coupons. Nonmonetary contributions to share capital are limited to 20 percent of share capital. In addition, banks are required to hold provisions against bad debts.

Pursuant to Central Bank regulations, commercial banks file monthly reports on their compliance with prudential ratios. These ratios are generally in line with Basle requirements.

At the moment, exposure to a single borrower is limited to 50 percent of bank capital. Starting on June 1, 1994, this requirement will be lowered to 40 percent of capital and as of January 1, 1995 to 20 percent.

Accounting Practices

The uniform former U.S.S.R. Gosbank banking system was replaced in the Baltic countries, Russia, and other countries of the former Soviet Union by a two-tier banking system. The objectives and the nature of banking activities changed. Therefore it was essential to introduce new accounting practices in these countries. Based on international experience, our Central Bank has developed a new chart of accounts, which we believe will satisfy the objectives of transition. The chart of accounts was designed in line with IMF recommendations. The chart of accounts is structured in such a manner so as to provide for its modification by removing old or introducing new accounts without affecting the rest.

With increased computerization we strive to produce a balance sheet with greater efficiency. At the moment the balance sheet of the Central Bank is only available once a month. However, once budget execution responsibilities are transferred to the Ministry of Finance and greater automation of Central Bank operations is attained, we should be able to produce a balance sheet on a daily basis.

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