Although it is difficult to make an accurate estimate of economic growth in Uzbekistan--because of the unreliable nature of government statistics, which often serve political rather than economic ends--economic growth is far below potential due to:

the country's poor investment climate;
failure to attract foreign investment;
an extremely restrictive trade regime, implemented in order to meet a strategy of limiting imports of consumer goods;
failure to reform the agricultural sector of the economy, potentially the engine of economic growth for this largely rural economy; and
the price system in Uzbekistan, which is not functioning properly due to government intervention in markets.

The government accepted obligations under Article VIII of the International Monetary Fund (IMF) Articles of Agreement on October 15, 2003, establishing full current account convertibility. The governmentís restrictive trade regime has crippled the economy and the government urgently needs to rescind its draconian trade measures. Substantial structural reform is needed, particularly in the area of improving the investment climate for foreign investors and in freeing the agricultural sector from smothering state control. Continuing restrictions on currency convertibility and other government measures to control economic activity, including the implementation of severe import restrictions and partial closure of Uzbekistan's borders with Kazakhstan and Kyrgyzstan, have constrained economic growth and led international lending organizations to suspend or scale back credits. The closure of the borders with neighboring Kazakhstan and Kyrgyzstan in 2002 almost paralyzed Uzbekistanís consumer market, although some goods are still being smuggled into the country.

The government has made progress in reducing inflation and the budget deficit, but government statistics understate both, while overstating economic growth. There are no reliable statistics on unemployment, which is believed to be high and growing.

With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. The government has implemented salary caps in an attempt to prevent firms from circumventing restrictions on the withdrawal of cash from banks. Some firms had tried in the past to evade these limits on withdrawals by inflating salaries of employees, allowing firms to withdraw more money. These salary caps prevent many foreign firms from paying their workers as much as they would like. Labor market regulations in Uzbekistan are similar to those of the Soviet Union, with all rights guaranteed but some rights unobserved. Unemployment is a growing problem and the number of people looking for jobs in Russia, Kazakhstan, and Southeast Asia is increasing each year. According to official Ministry of Labor estimates, around 100,000 citizens of Uzbekistan work abroad. However, business analysts estimate that the number of Uzbek citizens working abroad is far higher. Estimates range from lows of 3 million to highs of 5 million Uzbek citizens of working age living outside Uzbekistan.

Outstanding external debt reached $4.6 billion as of the end of 2003. Tax collection rates remained high, due to the use of the banking system by the government as a collection agency. Technical assistance from the World Bank, Office of Technical Assistance at the Treasury Department, and from the UN Development Program (UNDP) is being provided in reforming the Central Bank and Ministry of Finance into institutions that conduct market-oriented fiscal and monetary policy.

Consequently, agricultural productivity is low, with many farmers focusing on producing fruits and vegetables--for which supply and demand determine the price--on small plots of land, as well as smuggling cotton and wheat across the border with Kazakhstan and Kyrgyzstan in order to obtain higher prices.

Minerals and mining also are important to Uzbekistan's economy. Gold is Uzbekistan's second most important foreign exchange earner at 22%. Uzbekistan is the world's seventh-largest producer, mining about 80 tons per annum, and holds the fourth-largest reserves in the world. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil almost sufficient for domestic needs; and significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is extremely high, given the failure to use realistic price signals to cause consumers to conserve energy.

Uzbekistan is a member of the IMF, the World Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. It has observer status at the World Trade Organization (WTO) and has publicly stated its intention to accede to the WTO. It is a member of the World Intellectual Property Organization and is a signatory to the Convention on Settlement of Investment Disputes Between States and Nationals of Other States, the Paris Convention on Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2003, Uzbekistan was again placed on the special "301" Watch List for lack of intellectual copyright protection.

Uzbekistan's previous lack of currency convertibility was one of the reasons that foreign direct investment (FDI) inflows dwindled to a trickle. In fact, Uzbekistan has the lowest level of FDI per capita in the Commonwealth of Independent States (CIS). Since Uzbekistan's independence, U.S. firms have invested roughly $500 million in Uzbekistan. Large U.S. investors include Newmont, reprocessing tailings from the Muruntau gold mine; Case Corporation, manufacturing and servicing cotton harvesters and tractors; Coca Cola, with bottling plants in Tashkent, Namangan and Samarkand; Texaco, producing lubricants for sale in the Uzbek market; and Baker Hughes, in oil and gas development. No large new investments have taken place from the U.S. in the last 5 years.