Uzbekistan’s Constitution underwent yet another rewriting this spring, distinguishing itself from previous amendment instances by featuring a multitude of changes with active participation from the entire populace. Beyond mere voting, the people were involved in discussions concerning the updated constitution before its final referendum.
Having been approved by the people and officially enacted on May 1st, one might question the timeliness of delving into the alterations to the country’s foundational law. Nevertheless, unravelling the economic factors and driving forces behind these revisions holds significant value, as it enables us to anticipate the upcoming transformations Uzbekistan will encounter in the years ahead.
This article examines the constitutional changes from an economic perspective, exploring the stakeholders involved, their motivations, and the underlying purpose they serve. Emphasizing a rigorous economic analysis, we will refrain from delving into the legal and moral dimensions that accompanied this constitutional update.
Protection of private property and (un)change of power
The most significant constitutional change pertaining to economic rights in Uzbekistan revolves around bolstering the protection of the right to private property. This critical matter was deemed so essential that it received attention across several distinct articles simultaneously: Article 41 addressed the right to private property, Article 53 dealt with the protection of intellectual property, Article 65 safeguarded the inviolability of private property, and Article 68 enshrined the right to private ownership of land.
At first glance, this move might be seen as a reaction to the escalating public discontent over the recent surge in residential demolitions under the guise of urban restructuring. In response, a fresh Article 44 was introduced, underscoring the right to housing and its inviolability. However, scrutiny of the same article reveals a significant addition that “the state encourages housing construction and creates conditions for the realization of the right to housing.” Evidently, this new inclusion leaves more room for the interests of developers, potentially at the expense of homeowners’ rights.
The new version of the constitution’s heightened focus on the right to private property is driven by more significant underlying reasons. To grasp the essence of this shift, we must take a sweeping look at the economic trajectory of the republic over the past few decades.
During the tenure of President Karimov, a cohort of influential capital owners emerged and flourished in Uzbekistan, advocating for changes in economic policy. They sought guarantees for the inviolability of private property and improved access to foreign capital and markets. The economic stagnation that plagued the nation, particularly in the final years of President Karimov’s regime, sparked discontent not only among the masses but also within the echelons of big business. The latter demanded greater leeway and autonomy for their further expansion.
Numerous well-regarded experts, including lawyers and political scientists, rightfully pointed out that the primary motive behind rewriting the fundamental law was to extend the incumbent’s rule, a trend often witnessed in post-Soviet republics. Yet, it remains crucial to question why fledgling or fragile democracies harbour an aversion to changes in power.
In a society where respect for property rights lacks entrenched traditions and robust legal backing, any sudden shift in political power poses a significant risk to big businesses. Essentially, such power transitions entail capital redistribution, particularly true in countries where the same individuals often occupy key positions in both government and big corporations. In such societies, the existing authority, rather than a dependable legal framework, serves as the guarantor and protector of property rights. Consequently, maintaining the status quo becomes the top priority for big businesses, as it offers a sense of security.
In general, the business world abhors uncertainty. Stability and predictability are coveted attributes for businesses, including foreign investors eyeing the Uzbek market. Foreign capital hesitates to invest in Uzbekistan’s economy if there exists a high probability that their ventures could be expropriated, a situation that has occurred on multiple occasions in the past. Moreover, any “property redistribution” during a power transition would undoubtedly impact foreign enterprises as well.
Hence, foreign investors, including Western financiers like the International Monetary Fund (IMF) and the World Bank, place paramount importance on Uzbekistan strengthening the protection of private property—an emphasis currently being underscored. This imperative has become the primary goal of Uzbekistan’s foreign policy under President Mirziyoyev’s leadership, as attracting foreign investment and creditors is a top priority. As long as private property remains adequately safeguarded, the question of a change in power becomes less pressing for foreign capital.
Another vital demand from international financial institutions, and a key criterion used by international rating agencies to assess a country’s investment attractiveness, is the reduction of state involvement in the economy. As an example, the World Bank funds reforms aimed at privatizing state-owned enterprises. Regardless of how transparent and equitable the privatization process may be, the very goal necessitates robust protection of property rights. In essence, private investors seeking stakes in former state-owned enterprises must be assured that their property rights will remain secure.
The text of the new constitution unmistakably signals the current government’s alignment with big capital. A prime example is the inclusion of the right to private ownership of land (Article 68). For decades, Uzbekistan prohibited land from being held as private property, leading to agricultural production being carried out through farms. These farms would lease land from the state, obliged to meet the state’s agricultural product quotas, primarily focused on cotton and grain. Essentially, these were collective farms with private management, granting farmers the right to sell surplus crops. Local authorities dictated the allocation of land to individual farmers, but the amount of allocated land was constrained. Consequently, while big businesses expressed interest in this sector, the system did not foster the emergence of large agricultural enterprises.
Under the change of power, big capital was given the go-ahead to consolidate agricultural land in their hands. This necessitated a legal basis for the existence of large agricultural enterprises, known as “agro-clusters,” which was initially established through a presidential decree. Now, the right to private ownership of land is solidified in the Constitution. This further underscores that the new constitution is a direct response to the demands of big business.
However, the issue of the relationship between private property and the continuity of power presents a significant drawback: the entrenched nature of power makes it arduous to effectively disentangle political interests from business interests. Perpetual authority inevitably paves the way for the political elite to gain access to big capital, gradually merging with or, in extreme scenarios, even replacing the business circles altogether. This gives rise to a closed, self-perpetuating system—an alliance between the political and economic elite—where they mutually protect and support their respective interests.
Regrettably, the new version of the constitution lacks the necessary norms and guidelines to tackle this problem effectively.
Central Bank as a guarantor of stability
Another equally significant constitutional change revolves around bolstering the role and authority of the Central Bank of Uzbekistan. Efforts to ensure the Central Bank’s independence have been in progress since 2019, marked by the adoption of the “On the Central Bank” law. Taking heed of recommendations from the IMF and the World Bank, the Central Bank is transitioning towards a new monetary policy known as “inflation targeting.” This represents a notable departure from the previous policy, which revolved around maintaining a fixed exchange rate.
The shift in monetary policy aims to enhance Uzbekistan’s investment attractiveness and facilitate the relatively unrestricted movement of capital. It comes as no surprise that international financial institutions regard the adoption of a floating exchange rate and provisions for free currency exchange as key accomplishments in recent reforms. Under the previous government, a prominent concern for foreign investors in Uzbekistan was the challenge of repatriating profits earned within the country. Often, the government impeded the conversion of profits into foreign currency, citing exchange quotas as justification. Such practices significantly undermined Uzbekistan’s appeal to foreign investors.
As we have already discussed, stability and predictability are dear to capital. The Central Bank plays a pivotal role in striving to maintain economic stability, and the adoption of an inflation-targeting regime represents the most contemporary approach to monetary policy. In this role, the Central Bank seeks to strike a delicate balance—avoiding excessive acceleration of the economy that leads to speculative bubbles and inflation, while also preventing growth rates from decelerating too much, which could cause a decrease in gross demand and trigger a recession.
To fulfil this crucial task, the Central Bank must function as an independent institution (as articulated in Article 151 of the new constitution). In essence, decisions regarding monetary policy should not be dictated by the Ministry of Finance; instead, they should be autonomously taken by the Central Bank, informed by a thorough analysis of current macroeconomic indicators.
For an investor, observing a Central Bank diligently pursuing a competent monetary policy in the country, free from undue interference by the executive branch, instils confidence in a more stable investment environment. Such an investor can expect less abrupt price surges and, of far greater significance to foreign investors, a steady exchange rate. Consequently, investments in Uzbekistan’s economy become more appealing when there is minimal direct state intervention, stable prices, and reliable predictability in exchanging the Uzbek sum for other currencies.
The stability of the Uzbek sum also bolsters the appeal of government bonds, commonly known as “Eurobonds,” some of which have been issued in the national currency. Prospective buyers of these securities seek assurance that the Uzbek sum will not experience significant depreciation against major world currencies. The independent and predictable policy of the Central Bank instils the confidence needed to bolster such investor trust.
Furthermore, it is essential to underscore that the overhaul of the financial system, particularly the shift to a free currency exchange, constitutes a vital component within a broader set of measures aimed at aligning the country’s economic and financial policies with the requirements of the World Trade Organization (WTO). As Uzbekistan actively pursues WTO membership, one fundamental criterion for candidates is the ability to freely convert currency for trade purposes.
Labour and social protection
Another significant hindrance that deterred Uzbekistan from attracting foreign investors and fully engaging in the global market was the issue of labour protection. The infamous scandal surrounding forced child labour in Uzbekistan’s cotton fields, and the ensuing Western sanctions, left a lasting impact. Consequently, one of the new government’s initial moves was to rectify this unfortunate practice, seeking to rebuild trust with the international community.
These endeavours to “restore prestige” for Uzbekistan are also explicitly reflected in the revised version of the constitution. Notably, Article 44, which focused on the prohibition of forced labour, was supplemented with a clause expressly prohibiting child labour. Additionally, Article 42 introduced an innovation that places special emphasis on labour safety, minimum wages, and the prohibition of gender-based discrimination in the workplace.
While the reforms protecting property rights were designed to convince potential foreign investors of the reliability of investing in Uzbekistan’s economy, the strengthened labour protection measures aim to regain the trust of Western consumers. Encouragingly, these efforts are already yielding positive outcomes: both the European Union (EU) and the United States (US) have resumed purchasing Uzbek cotton.
Moreover, the latest version of the constitution, for the first time, highlights the state’s role in providing employment opportunities and shielding the population from poverty. This formalizes the responsibilities of the Ministry of Economic Development and Poverty Reduction, which has been entrusted with safeguarding social protection and implementing labour reforms. Notably, these reforms are carried out with direct involvement and support from the International Labor Organization (ILO).
In terms of their substance, these innovations can truly be deemed populist. Reading through them, one can hardly escape the impression that they resemble excerpts from a presidential candidate’s election campaign. The constitution pledges to combat poverty, ensure a minimum income, guarantee access to quality education, healthcare, and much more, portraying the state as the guardian of a dignified life for its citizens.
However, when the new constitution extensively promises economic growth at the expense of business growth, it becomes difficult to take these social care clauses seriously. The means through which the state intends to finance all these social initiatives remain unclear. Increasing taxes for the population contradicts the notion of genuine social concern while raising taxes for businesses goes against the proclaimed objective of fostering a “favourable investment and business climate.” Consequently, such promises in the new constitution may be perceived as empty rhetoric, lacking a solid foundation for implementation.
Key Takeaways
Updating the constitution in Uzbekistan marks the next logical and well-considered step by the current authorities to provide local and foreign capital with the freedom to flourish. This move is a direct response to the demands of a market economy, which, for years, faced constraints due to stringent state controls, lack of protection for private property, restricted entrepreneurial liberties, and barriers hindering the free movement of resources—be it materials, labour, or financial assets. The revised text of the constitution embodies the government’s commitment to rectify these shortcomings and present the New Uzbekistan as an enticing business partner, an emerging market for trade, and a promising investment destination on the global stage. Article 67 of the new constitution eloquently captures this resolute desire:
It is crucial to recognize that, despite being adorned with cosmetic phrases about national and universal values, individual freedoms, and the collective will of the people, the new constitution of Uzbekistan unmistakably reflects the ambitions and interests of the burgeoning class of entrepreneurs and big capital. This document formally sets forth the trajectory and objective of the current government’s reforms—albeit somewhat belatedly—to embrace and implement the neoliberal model of economic policy, thus solidifying Uzbekistan’s status as a fully engaged participant in the global economy.
Main photo by The Japan Times