Suma Chakrabarti is an adviser to the President of Uzbekistan Shavkat Mirziyoyev on economic development, good governance, and international cooperation. Previously, he was the president of the European Bank of Reconstruction and Development (EBRD). We have talked about his new role as adviser to the President, agricultural productivity, size and the scope of government, rule of law, political constraints for reforms, and Uzbek political culture.
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Hoshimov: Hello everyone. My name is Bekhzod Hoshimov and this is “Hoshimov’s Economics”. Today our guest is Suma Chakrabarti. Welcome, Suma.
Suma Chakrabarti: Thank you very much. Good to be on your program.
Hoshimov: Thank you for taking the time. I will introduce you. Suma Chakrabarti is an advisor to the President of Uzbekistan on economic development, good governance, and international cooperation. He is also an advisor on economics to the President of Kazakhstan. Prior to these roles, he was a president of the European Bank of Reconstruction and Development (EBRD). And before joining EBRD, he was a senior civil servant - permanent secretary at the UK government.
Thanks again and welcome. I will start with your new role. Can you tell us a little more about your role? How is it managed logistically and how often do you communicate with the President? Does every legislative initiative of the President go through your office?
Suma Chakrabarti: Well, thanks very much for that introduction. So, my role is across three very broad pillars. I advise the president, firstly, on what I would call economic strategy and economic reform, that is pillar one. It covers a very wide set of issues, and I can get into more detail on some of those later. But essentially, it is about moving the great momentum on economic reform, pushing that forward quite heavily. The second pillar is on making Uzbek public administration more effective. I think everyone, who has had anything to do with Uzbek public administration, knows that it needs further reform, the further movement really to become more efficient and more effective. And so there are a number of ideas that I have put forward for trying to help with that as well. And the third pillar is about communications and branding, domestic communications, particularly where Mr. President has been very keen to have more of two-way communication between state and the citizens and also with businesses. And the style of communication is still quite very much in one direction. And rather than receiving them both ways, although it has opened up, I would say more than it used to be the case. And the other part is the international branding of the country as well. So, here it is very much obviously the brand image improved a lot after the change in president, and after some of the reforms in 2017, 2018, and 2019, but we are now five years on and we need to always with any brand, you need to keep trying to do things that will keep it good in the international mind. So, reform here, I think economic and political reform will be very important to maintain the brand status, the improved brand status of Uzbekistan.
There are plenty of countries to learn from who have done a lot to improve their brands in recent years, including former command economies as well, take the Baltic states or Georgia as examples. So those are the three broad areas. I see the President on every visit to Tashkent. I built up a very empathetic, I think, close relationship with him when I was the President of EBRD, and that continues to this day. So, when we meet, we usually spend quite a bit of time together. Sometimes we are eating together and it is usually just one-to-one with one interpreter, as well, then that is all there is. So it is a very, very open and frank relationship. I am an advisor. So, my expectations are simply that I will be listened to, but not everything I say can be acted on.
The president is very open with me. There are some things you can move forward with, some things that he can move forward with later, maybe. And some things that really in Uzbek culture may be more difficult to move forward. So, it is always a very open discussion with him. He encourages that, and it is a warm discussion. I mean, he knows about my family. I know about his family, I have met them. And so, it goes beyond just being a sort of professional advisor such as well. But you asked also this question about whether every piece of legislation in Uzbekistan goes through my unit. I can only say “thank God”, no, it does not. That would drive me and my unit mad. I think if that was the case, there were so many decrees, so much legislation. No, we are very much focused on these three areas.
Even in those areas, we are not the lead, we are advisory. So the lead is with the ministers and ministries. And so they do not clear their pieces of legislation or decrees with me at all. Obviously, I have been involved in some things which are very direct, for example, in this last week, my own roadmap was approved. So I was obviously very pleased with that, but also the Agency of Strategic Development decree was also approved and that is important. I have been involved with those two ideas. So, you know, it is pretty much, I get involved in certain things only. There is just too much, I think, for one person to try and cover everything.
Hoshimov: I think there is a lot to unpack here. You said there were things in Uzbek culture that do not let you or the President move forward. Can you just give a brief example? I did not quite understand that.
Suma Chakrabarti: If you take the whole question, for example, I will give you a concrete example. In some countries, you know, you would have debates, presidential debates, for example, between candidates very openly. You are in America right now. So, you know that system very well. It is the same in the UK. But in many, not just Uzbekistan, but many Central Asian countries and others, that is not really part of the culture to debate on stage openly with your opponents, your ideas. I think that day may come one day, but it is not there yet. I think that we should recognize those things, that the style of political cultures is still developing. And it is not part of Uzbek culture yet to do that. That is one area, but at the same time, I mean, the fact that you and I can have this conversation, we could not have had this five years ago. That is for sure until the President came, he opened this space up, so that we can actually talk about these things, you know, in a more open way than it was possible in the past. So, you know, it is also true that in every culture, things change over time, so they are not fixed forever.
No, I think we should all hope that in every culture, including my own one in the UK.
Hoshimov: Me too, I mean, I am very much grateful for that opportunity to be able to speak my mind freely. And I do write my mind without repercussions or anything.
I think it is easier to find similarities between countries and states and development. But if we talk about differences, what are the key differences between the current state of Uzbekistan with that of other countries that had similar experiences that were part of the Eastern block or the Soviet Union or Central Asia? How do you think we differ from our Central Asian neighbors or our Eastern European neighbors? I mean, how do we differ from the former Eastern European block in terms of development and growth, and in terms of institutions?
Suma Chakrabarti: So I think your last word actually sums up some of the differences, institutions. I think because the Baltic states, Poland, Hungary, Czech Republic, Slovakia, Bulgaria, Romania, all, had a destination that they wanted to reach, which was EU membership, the club they wanted to join. They had to put in place a number of institutional changes really that would make them fit for membership in the EU. So if you look at one of the biggest differences, within Uzbekistan and also generally in Central Asia, be Uzbekistan and others, these kinds of institutions, the public institution, public administration institutions, also I would say some of them market-facing economic institutions as well, the independence of those institutions. That is one quite clear difference now, even within the Central Asian region. I would say Uzbekistan because it was quite closed for 25 years after independence, and didn't do some of the things that neighboring Kazakhstan did. Actually, Kazakhstan has done some of those things early, but also more recently. And I think Uzbekistan was beginning to move in the same direction, which is creating even when you have a bureaucratic system, which is still quite Soviet in the way it operates, functions, and mindsets. Well, what Kazakhs did create one or two institutions, which were quite different and where you have quite modern corporate governance or Western management approaches and so on. I am thinking of the Astana International Financial Center (IFC) for one, even some casinos in Bayterek. They are all. Now that does not mean that the Kazakh public administration has changed, but it means they have created almost these islands of good practice from which they can borrow good ideas to put into the regular public service if you like. Uzbekistan, I think, is now starting to do that with this new agency - strategic development. Obviously, we will have to see in two or three years’ time whether I am right or not, but I think this agency has an opportunity to create a different way of doing business. And so for me, it is exciting because I did the same for the Blair government in 1997, when they came to power. They wanted to create something within the personal service, which was going to be different from the rest of the civil service. And I created what became the strategy unit similar to the Agency for Strategic Development. And I created an opening in a style, which was quite different from the regular public service. So we could attract private sector people, academics, all sorts of different types of people, not just civil servants into the thing. And they would come for six months and then I go, and they would do specific pieces of work.
That way, of course, also it meant that they would be continuing to be paid the salary they already had, and they would not lose out by coming into a public job. I think some things like that would be really quite innovative in Uzbekistan, but I think it would also change the way the public administration works. But I would say that the heart of your question, it is institutions, which are quite different and you know, another comparison, not just because Uzbekistan is not alone in this. Another comparison would be between Ukraine and Poland. In 1991, they had pretty much the same per capita GDP. And the difference now is enormous. And one of the things, Poland got right, was both central and local government capacity building and really building institutions of the state that would function well. And Ukraine has never invested in those things at all until very recently. And they started to do that. So public institutions matter a lot for economic development, and getting those right is important. So that is a big reform for Uzbekistan, I think.
Hoshimov: You have worked for EBRD for quite a bit, and EBRD has certain values and policies when it comes to pursuing certain types of policies: like inclusion, political freedoms, democracy, and so on and so forth, which are, you know, all very noble goals. And in your current role as an advisor, you are not bound by those policies and goals, but do you think you still share those values of what EBRD proclaims? Or do you think those values or policies that EDRD proclaims at least publicly, were not helping you, for example. Was it more of a constraint or was it something that you share as well?
Suma Chakrabarti: No, it is very much something that I share. So, it is my values that do not change because I change institutions or change my employer. And one of the nice things about being my age, you can pick and choose, you do not have to work for these people if you do not want to. So the decision I made to work in Uzbekistan after EBRD was because I believe Uzbekistan is on a journey, it is a long journey. I describe it like, lots of different ways to get from point A to point B. But you have to make a judgment as to whether you think the country is broadly moving in the right direction, even if you do not agree with everything that is happening. It is always going to be sort of, you know, on the one hand, on the other hand, sort of judgment, and there was the same at EBRD.
So EBRD in certain extreme situations for example, in Belarus in 2010, after the presidential election, 2010, they had severe problems, big riots, protests, EBRD then decided not to lend any more to the Belarus state institutions because they could not justify working with the state that behaves that way to only work with the private sector. And now again, Belarus then started reforming again. And so EBRD could work with the state sector again. But now again, they have had the same problem when they have had to. So even EBRD is able to flex its response depending on the situation. But you know, this is a journey that advanced economies, societies, like the UK has been on since let us say the 18th century or even earlier, maybe in the UK with Magna Carta. So I do not expect any society to be transformed politically and economically in one, you know, a few years, even if it is a long journey. The important question I always ask myself is, do I still believe that this leadership of these countries still believes in that journey and is acting in the national interest, not in the personal interest. And I do, in the face of Uzbekistan, I do believe that this is the journey they're on.
Hoshimov: What is the evidence that you have built for yourself to come to this answer. Is there a checklist, like if they do points one, two and three, then that means this; or is it more like, how can I say, feelings, you know, something that is not very codifiable?
Suma Chakrabarti: It is a mix of those things actually. So, you are absolutely right. If you are in EBRD, every time they do a country strategy, they have a full analysis of the politics. And, you know, in quite a few EBRD’s countries of operations would say, yes, they are still applying the principles that are in the EBRD founding document, but they would all say albeit perfectly. And that would be true for many countries, I think, that would be lovely, fair judgment. EBRD only does that by going through a set of, I think, 14 criteria it has to do with that. That is the sort of rigorous approach to it, but leading at the end still to political judgment. Because the criteria, not scores, they are sort of, “yes, on this one, they are going forward, on this one, they are stuck, on this one I am going backward”.
So, it is an overall judgment. And, and then on top of that, you have to have a sort of the level I was operating at EBRD, or even now a personal judgment as to whether you think, there are some bad things going on, some good things going on. But do I believe in the leader that I am advising that he is really on the right road and he wants to pursue it and he actually cares about the road and he wants to pursue it? And in President Mr. Mirziyoev, I do believe that. I think this was a huge break from the past, a huge risk taken by him personally to push ahead on these reforms. And I know because I have spoken to him many times, just, you know, on my own with him, his personal commitment to this and the hours he spends trying to drive this change and how frustrated he sometimes gets as well when he visits the regions or something like that and he finds a change is not happening quite as quickly or in the way he wanted it to happen. And you know, so I have also to build in my personal belief in that leader before making my decisions about, you know, what I am doing.
Hoshimov: Thank you for your answer. I actually listened to your talk at a Hardtalk BBC about Azerbaijan. They asked you a similar question. I understand that time you were a president of the EBRD and then you were answering as an international civil servant, and right now, thanks for sharing what you really think.
You have thought about development economics I think, throughout your entire career. You worked at the Department for International Development in different roles - you are very much committed to international development.
Which is in your opinion a bigger problem for the developing world? First, is it that leaders of developing countries do not know what to do? Or for the most part, do you think the leaders of the developing world do not want to?
Because, if you look at the last 30 to 40 years, per capita income growth in many places, including Uzbekistan, was pretty low. For Uzbekistan, we know the reason overall, so what is your assessment of that?
Suma Chakrabarti: It is a really interesting question. I guess my reflection, as you say, after many years involved in, and touched development, is that leaders often know what to do, and if they do not know what to do there, they can access people like me and advisors to tell them what to do and advise them on what to do. The issue is really the decision that they have to make. And the decision is often a hard one. And this goes by the way, for whether you are in a full democracy or in a guided democracy or moving in the right direction democracy. Whatever category you are in, it is the same sort of judgment call, if you are balancing as a leader, what is in your national interest with, what is maybe in your party interest or your personal interest as well. And that is the balance that is very difficult. And if you then have election cycles, you put it out into that mix.
Then a leader can be driven towards short-term thinking. The best leaders, those who do not think in election cycles, and think long-term and can offer a vision of a long-term, that is also winning them elections in the short-term. I thought Tony Blair in the UK was very good at that having a long-term vision but persuading everyone every few years to vote for his party, by sticking to the long-term vision and then showing how it was changing the country. That is the gift of real leadership and I think, again, I would say President Mr. Mirziyoev does have that gift. He has an understanding of, we want to get to, you know, he is not someone who has grown up in a market economy. So he has not got that experience of what the market economy does compare to the command economy, but he knows the situation. He is looked at the comparisons. He knows that Uzbekistan has to move in that direction. If it is too, as you say, how high of a captain can grow and drive out of poverty in the regions and he has a long-term vision for it. They are trying to do that. And so he is someone who is able to marry the national long-term interest with what he needs to do as a leader today. And that is the unusual balance that he has got. In some emerging markets and some of the advanced markets, somebody just does not have that. They tend to be very short-termism.
Hoshimov: But is not it because of political realities of a state, countries, and regions, there is more sort of political competition? And then short-termism prevails primarily because of pressures, like electoral pressures, and in Uzbekistan, they do not have that pressure set to the point. What I am trying to say is that is not it because of the electoral referral system.
Suma Chakrabarti: It can be, but I would point out too that those electoral pressures were there for Thatcher or Blair, and these are the people who had a clear vision of how they wanted to change their country and kept winning elections as well. So you can somehow find the right balance between doing both. Yes, I mean, there is no doubt that contested elections, contestability, political competition makes some things more difficult to do. But it is still possible to do it as some leaders have shown. And you know, over time in the political space in Central Asia generally, more and more freedom is planted. You know, people will start contesting and arguing about reforms more openly. They probably did so at home anyway, so they will be able to do it more openly. And that is a challenge that the modern leaders in Central Asia will have to get used to. I personally think that is a good thing. It is a good development to have your generation, you know, challenging ideas and, you know, that can only improve the overall politics and economics in the countries.
Hoshimov: All right, thank you. Let us move into the specific reforms that I want to ask your opinion about. You know, many Asian countries, especially in East Asia in the late eighties and early nineties started, at least according to the popular narrative, with land reform. They reformed their agriculture. They gave land to the farmers. So did China, and so forth. and then the rise in agricultural productivity led to their [overall] growth and development. That is a sort of a popular narrative.
In the past 30 years, Uzbekistan has not, I think, moved in a direction of actually reforming agriculture. The government has the main role there, they order how much cotton and wheat you have to produce. There is basically a command economy in agriculture, which makes farmers very much dependent on local authorities. And the fruits of the labor of farmers are not really captured by farmers themselves. So the incentives to improve productivity are not there. So why do you think this is happening? And is the answer, more political than it is economic and, and if yes, then what it is?
Suma Chakrabarti: So, you, in a way, have answered your own question, I think, there are in Uzbekistan, and I have not done a study of the agricultural sector. But it is one of the things I think does need to be looked at in greater depth, but it is quite clear that the state role in having this, buying a certain amount of product every year, the relationship between “hokims” and farmers, these are huge constraints, frankly, on agriculture. So, at the same time, it is quite clear that the state is not yet ready to agree to sufficient land reform that would move away from just selling leaseholds, to that you are saying freehold. The state is not ready for that clearly. So, somehow some things are going to change.
Obviously, the state has got to get out of it, even if it is not willing to move to freehold. Sales lease has to agree to a very long-term leasehold. So investors might actually want to invest in this sector. Secondly, particularly investors who will, I think, change the capital-labor ratio in the sector. So productivity should go up because it should become a little bit more capital-intensive. And also they will bring in some modern management practices that they have got, which will help, I think, both with technology and with the management of the farms. I also think I do not know enough about it, but so many people complained to me about how local “hokims” (governor) hold. Basically, this is the best interest bank for them, and that linkage needs breaking to allow much more independence of the farmers and so on.
So, everyone always tells me this is a very delicate issue in Uzbekistan. Because it is still a huge part of the GDP, but it is not very productive. I agree with you, but it also employs a huge number of people as well. So the sector, so people are very cautious about how much reform they can do, but I would like to see the review of the cluster system to see whether it is working or not, I think that is necessary and that is in my roadmap that was approved. I think that is a big issue. I also want to see this new decree on land that has been put through and to where they make a difference. I think there is also a new decree on anti-corruption, in which hokims are in particular targeted. So these are all interesting building blocks to see whether this sector can be changed as well. But as I said, I have not really looked at it in detail, but I think you are absolutely right. This is a sector that needs huge reform to make it a much better part of the economy.
Hoshimov: Yeah. I agree with your assessment about hokims’ authority. I think that the main challenge is not the ownership structure. I do not think whether because it is freehold or leasehold. They are giving the land for 50 years anyway. In my view, the main challenge is the eminent domain idea. That hokims can basically write their own reasoning for taking your land which actually gives them too much power over the court and judiciary system. They [hokims] can essentially take out your land if they wish to. And I think the idea that hokim can take away your land discourages investment and also skews a balance of power very much towards the executive authorities. In that case, I was thinking, what are the costs of getting rid of that? I still do not quite understand it. But, I think about it and I would be glad if you go through and look through it.
Suma Chakrabarti: Sure. You are encouraging me to do that. And on one of the next trips I need to get out of Tashkent to a couple of regions. And that is fun enough, that is one of the issues I wanted to go and look at very directly. It has been sent to me, also like you said, that 50-year leasehold, in some sense, very, very good, it is somebody having a freehold, except as long as the state observes a 50-years point and does not try and then change the rules again, later, with freeholders, more difficult for the state to change the rules with them. But on the “hokims” point, it is also not just about hokims’ relationship with the farmers. I have heard plenty of stories about hokims interfering with foreign investors who have invested in agriculture as well. If the foreign investor does not do what hokim says immediately, the hokim starts being difficult over many issues. This is impacting the investment climate for the sector as well.
Hoshimov: Yeah. But you know, hokims are also, I think, economic actors and they are not doing it just for fun. I think one of the constraints they face is that they have a plan on certain goods that they have to deliver. When they are distributing the land, they care much about how their plans would be met. I think, the biggest constraints to the hokims right now, or their responsibility is to meet those plans. And that is why it is happening, it is almost like a knee-jerk reaction in which the farmers blame hokims, but I think, it is the planned economy to blame, in my humble opinion.
Let me ask you a more philosophical question. Many growth-enhancing policies that we know are commonsensical, right?
Like removing trade barriers or removing taxes for imports and so on. Privatizing government-owned property and companies so that the more efficient owners will be investing and increase productivity. Opening up the movement of people and capital, prudent fiscal policy, independence of central banks, designing government regulation that prefers consumer welfare and competition over the interests of captured industries. Although those things are quite obvious maybe to you, or maybe to me. I am not sure if this is [obvious], but I am just saying that because it seems obvious to me. Maybe I am biased about this way of thinking, but do you think that those ideas are hard to understand? Or because of some constraints, we are not moving forward in those directions. In terms of trade, for example. There are regulations in terms of privatization. What is your stance on that?
Suma Chakrabarti: You are right. It is a very good question. So, first of all, what may seem obvious in my life, my experience is what may seem obvious to me or to you is not always obvious to everyone else. And one has to recognize that as an advisor. You know, so all the things you listed there, yes, they are obvious to me and you. Although there are arguments about some of those things, they are fairly accepted these days, but if you go to a very rural area, maybe would they all be obvious? And, you know, I know enough people in Uzbekistan, even in Tashkent of an older generation who already has, shall we say, wonderful memories of the Soviet Union and what it did for them. And these are probably quite romantic memories. They probably are not even true, some of the memories, but they are part of their belief system.
You know, and so they fear change because they know they knew something that worked for them in a very simple, basic needs way. What we are promising with all the list of changes you said is something that is not yet tangible to them. And they also know that there are plenty of stories in making that shift, whether it was in Russia and other places in Eastern Europe, that actually things got worse for a while before they got better because of the transition process. As you know, companies closed and things like that, or privatizations that did not work well in so-and-so. There are lots of urban myths that grow, not just urban, rural myths sort of grow. That is number one. There is a lot of need to make what may sound obvious to me and you to people who may not see it as obvious. And that is one of the things about communication. That is why your program is important because you know, it is programs like this that should over time bring a healthier debate about these issues. And you know, I hope, maybe you have done this already. Maybe you should interview some older members of the Uzbek society and ask them to compare life then with life now, what they want in the future, and have that debate more openly, I think.
The second thing, though, I think, also not the list, a wonderful list you gave, of what would constitute a modern economy, is always to ask the question, the political economy question, who actually is gaining by the current situation and will be against the reforms. And it is not necessarily the poor people at all. And it is actually quite wealthy who are gaining from no change.
And they are the ones who also have access to political leadership and to power and can try and prevent change. So whether it is, you know, things like trade issues, trade restrictions, but someone is always gaining, you know. If you have an import ban, someone is gaining because, you know, you are basically reducing their competition. So always with privatizations, you know, there are some very wealthy individuals involved with the state enterprises right now in Uzbekistan. They do not want privatization or if they do, they just want to turn a state monopoly into a private monopoly, whereas we want the competition. So, and that is the hard job that President Mr. Mirziyoev, other presidents of emerging countries have because these powerful vested interests also have access to other players in the political system and can try and prevent change as well. So continual chess games get played with these sorts of people. But you know, you need determination in this situation and that we have.
Hoshimov: You have answered one of the next questions that are on the list. Look, one of the things I was trying to ask is about the emergence of the rent-seeking economy, in which we are trying to get away from the public monopoly, basically, to the private monopoly by letting the regulatory capture of those industries. And then basically the state is giving out these freebies by protecting those [captured] industries. And you know, one thing that bothers me a lot is trade restrictions. The benefits of those restrictions are very concentrated and the cost of import taxes are very dissipated across the board, right? If you charge an import tax on sugar, for example, everybody is going to pay more for sugar, but it is such a tiny amount that people do not realize what is going on.
But the people who gain from it are very concentrated, you know there is a handful of them. And so what happens in terms of political economy is that those people can concentrate the efforts in terms of pushing those restrictive policies. But people who pay for that, also the amount they lose is larger than the amount that other people gain, it is hard to cooperate. I do not see a solution here. What is your take here? You know, it is really hard for people to realize that the sugar is going to be one cent more for a cup, and then people “yeah, you know, whatever”, that is the thing I struggle with.
Suma Chakrabarti: So, I think the thing that people are not aware of in the way that you are more aware than I am of these things is, you know, the handful of people who gain. These are people who live in the shadows, a handful of people who gain, right. And the wider public is not really wholly aware of who these people are. They probably know that someone is gaining. They do not necessarily know who, and this is where this is going to be a long journey clearly, but this is where the sort of freer press, freer media really matters, creating a political debate in parliament really matters. So programs like yours, you know, even if it is still not possible for you to name publicly who these people are, I think, then you would not have a problem properly. But by simply saying this and giving this example that this rent-seeking and the rent is going to this group of people, a small group, the public becomes more and more aware of this sort of thing.
I mean, let us take an example like India which is, you know, full democracy. And in the early nineties, when the Indian side of reforming, the new economic performance, it used to be called the license Raj. So all the licenses, you know, had all the rent seeking power. Actually part of the democratization of debate around this was to expose this sort of behavior and to show the public that they were actually paying higher prices because of the control over licenses and you don't have to name people. You can just do it by just going to the public and saying, you know, you realize this is what is being skimmed off by those who control these licenses. But this, I am afraid, will take a long time because, you know, you are going to have to keep coming up with new case studies of different sectors and different places, things that really matter to people, you know. So in India, what really mattered was rice and onions, things like that. So the rationing of rice, if you went to an Indian market in until the early nineties, you had a ration card and you could buy a rationed rice, but if you had a bit more money, you could buy rice on the black market as it was called in as well and better quality rice as well. Basically, this became exposed completely as a sort of untenable thing. And the media did a wonderful job of exposing it, all parliamentary questions and debates. And, you don't see that anymore. It is gone. But I can remember it from my childhood.
Hoshimov: Yeah, me too. I mean, I remember, the US dollars being something like rice in India, we had a black market, you had the rationing cards
Suma Chakrabarti: When we went to convertibility of the exchange rate. I mean, the exchange rate was just quite astonishing really because that was an attack on vested interests.
Hoshimov: That was yes. Yes, I remember. And that is the thing, I really think that was one of the most important reforms of the president. Because at that time when I was in Tashkent, back and forth, when I spoke to people and some government officials, some were sincerely thinking that this system is working. And some people, like the optimists, were making money out of it. And I thought this is unsolvable unless there’s a political will to step up and, you know, low and behold, the day I flew out from Tashkent in September, I forgot the date, and when I touched down in the USA, I opened up the news and there was the decree on “konvertatsia”- I mean conversion of foreign currency
Suma Chakrabarti: It must be September, 2017. It would have been. No, I remember well, and I also remember the president telling me that, even those who agreed with him, said that this needed to be changed. I think even the IMF thought it would take longer. So, I remember many of the reformers saying “do, yes, Mr. President, slowly in stages”, and he actually speeded up the whole timetable. He decided, “no, we are going to do it, we are going to just do it”.
Hoshimov: I think a lot of reforms are like that in Uzbekistan. There are low-hanging fruits, and that is why I think I am so concerned. Sorry to be emotional.
I think we have 15 more minutes as far as I understand.
Let me move to some of the details. You know, let us talk about foreign direct investments. In 2019, it was the highest level of foreign direct investments in our history. But it still in absolute terms is very, very low. If you look, compared to, say Georgia, we were barely higher than Georgia and I think even lower. And that is a country that is 10 times smaller and which, you know, 30% of its territory is currently occupied by war. And so, you know, although it is not like 600 million, like the year before, still, it is just very, very small. Why do you think foreigners are not investing in Uzbekistan? What is your main diagnosis?
Suma Chakrabarti: Yeah, sure. And you make a good comparison with Georgia as well. I think, you know, you can go into the nitty-gritty. You can look at their business survey results and so on. That is fine, doing business surveys is a nice league table. Most countries have worked out, including Uzbekistan, how to gain that early table in my view. So I prefer to really ask the investors what they think, and they tell me two or three things, big things. One is the rule of law in different countries so that they have choices to make, right. They can choose Uzbekistan, they can choose Georgia, they can choose wherever. Why they particularly in Uzbekistan do not wholly believe that the justice system is as transparent and fair as it would be if there was a dispute between the foreign investor and the state.
So it is noticeable that more and more foreign investment contracts are coming to Uzbekistan. The dispute resolution is often written down as in London because they have belief in English common law. So one question I think that I am posing and it is in my roadmap is, Uzbekistan has to consider creating a special jurisdiction. We are using English common law. I mean, Astana has done this already. And it has been a great success in attracting a lot of foreign investors, new foreign investors. So rule of law and dispute resolution under English common law is, I think, one big thing that could change them. Secondly, there is also a belief amongst some foreign investors that Uzbekistan has been very slow to resolve outstanding disputes between investors and the state. It is one of the indicators, And of course, again, if a country has a reputation for not actually honoring resolving disputes, then the investors talk to each other and say, “look, it is easy to go to another country”, frankly, where they are more likely to further dispute. There are always disputes, they are more likely to resolve them.
Thirdly, and again, in my roadmap, I have said we need to resolve these disputes. Thirdly, although I think it is good that we have the Ministry of Investment in Foreign Trade (MIFT), it is still not a one-stop-shop. If you are coming in as a new investor to Uzbekistan, you still have to navigate across many state organizations and you are still going to have to deal with the regional side as well, and all hokims and so on. And many investors have said that although MIFT understands the language of business and what to do, many other parts of government or in the regions, they do not understand at all. And therefore it is very, very high in transaction costs in dealing with those backstage if you want to come into this. And fourthly, and my last point, I think there is also a concern amongst many foreign investors that a lot of direct deals are being done between, let us say, companies from certain countries and Uzbekistan. And that means, you know, if you are an investor, you really probably form a pursuit that you will not necessarily have a chance unless you do a direct deal as well. And many of these companies are coming from countries where their governments do not do direct deals, you know? So, you know, let me just give you an example of my own country here in the UK. And if there was a UK company that wanted to invest in Uzbekistan and then, you know, they heard that actually, it would be easier to get the investment deal agreed if the UK government also put some money in to subsidize whatever, they know they can forget it, that the UK government does not do that. But they know that their rival company from another country, maybe not far away, will do that. And so that has a chilling effect as I call it on certain types of investors from certain countries, particularly European ones and North American ones, I think. So there are four reasons, I think, that we have problems with investment. And we do need to raise the investment level without a doubt because it is not just because it is a level, but because with a foreign investment you get all these other transfers of expertise, technology, management, culture, and things like that really would be good for Uzbekistan.
Hoshimov: How do you think this is related to the size and the scope of the government? The Soviet Union collapsed more than 30 years ago. And if you look at the size of the government both in terms of flows and in terms of stocks the share of the government expenditures in GDP is just below 40%, but, you know, it is under-counted because we have a lot of quasi-fiscal expenditures [that are not counted]. The expenditures of state-owned enterprises are not part of this, but they are fiscal expenditures. The fact that we are not counting them in, does not make them go away.
In terms of stocks: a lot of things are still owned by the government. In any industry, starting from agriculture, transport, construction, communications and so on, everything, you know, the main sort of industries are government-owned. And in that situation you know, do you think we should reduce the government share of flows and stocks? I have my ideas, but I just want to hear what you take on that.
Suma Chakrabarti: So, in short, my answer is yes, we should. And you, you made, gave one measure, which is, you know, the share of spending as public spending, as a share of GDP. You can give others, the share of economic activity, total economic activity. It is extremely high. And it is, you know, very, very high indeed and it creates huge inefficiencies. And then if you look at the size of the central state, the number of ministries, the number of state committees, which also seem to be overlapping with ministries, the number of agencies, there is a lot of duplication going on. Again, I have talked to two, a couple of foreign investors recently who seemed to be discussing the same issue with two or three different ministries, because they were not sure which ministries are even leading on it. So the size is too big. There are too many public institutions, and there is a lack of clarity about who does what within those institutions. So this is definitely true, you are absolutely right. This is a big impediment, actually generally to public good public administration and therefore to investments as well.
Hoshimov: Well, but, you know earlier in the conversation, you said, you are happy that the new agency for strategic development was established or you just said that the Ministry of Investment and Foreign Trade was a good example of governance. But, you know if we agree that, you know, size and scope of the government are too big, do you think it is warranted that the number of agencies that are being established, which all have, sort of noble intents, you know...
How would you think of that?
Suma Chakrabarti: Yeah, no, I mean, it is a perfectly genuinely good question. So why do I think, despite me saying what I said just now, the Agency of Strategic Development is a good idea? Because I think it is a disruptor. I think, basically, the Uzbek state needs a disruptor. You know, all these ministries, I have walked around and talked to them all, they are all operating in a very old-fashioned way. So this agency can disrupt things by being a Highland in Oasis of good institutional practice. Like, as I said, like IFC in Kazakhstan, it can be like that, and it should be structured like that. If it is structured like a ministry, then it is just adding to the same again. So it really has to be structured in quick teams, which come together and then break up off, leave, solve an issue, and you have great different disciplines as well coming in, just like I described earlier with the strategy unit in the UK and that will be the disruptor. It needs to do business differently from the ministries, otherwise, you're right, it will be just the same. And we can, we would just add to the problem. And if you can do the show, it can be done differently and in a different way. And then over time, again, I hope this will impact the start of government, size of government, and the sources of power in government as well.
You know, the other thing that is been bothering me a lot in Uzbekistan, also in Kazakhstan, in Uzbekistan is the very long hours the state officials are working, and not just senior ones, but all of them are working very long hours. They work seven days a week. They, you know, do not see their families speaking up. And if you are a woman particularly this is very, very difficult then for you to make any already the culture is not, really, is not very equal, is not at all equal. But then within that, if you have a style of working seven days a week, you have got to be around. Well, women who are having kids want to be, you know, as mothers as well, or have also to deal with elderly parents. It is, and of course, the younger generation, they also want to be with their kids much more and it is more than the older generation. It makes it very difficult for the modern man or woman to flourish in that system because it encourages seven-day presenteeism as we call it in the UK approach. And, I have spoken to several ministers who were very unhappy and would like to spend more time with their families. They do not know their children well enough anymore. And I would question frankly, and I would say this in any country. I think when you work seven days a week and very, very long hours with very little sleep, you are actually not very productive, because you are tired most of the time and you know, that does not help as well. So we have got a whole bunch of issues on the public administration side to solve, from, you know, structure, size, style of working and also hours working all of these need to be resolved as well.
Hoshimov: I agree. I think the size and scope of the government, we should get rid of this, then thanks for noting it.
Suma Chakrabarti: Well, we should involve you in the work. That is one of the things we are going to look at.
Hoshimov: Oh. I think I am almost out of time, so I had more questions obviously than we can cover. But there is one thing I am thinking of. I will try to merge the two questions into one. So just bear with me for a second.
Suma Chakrabarti: All good journalists say so.
Hoshimov: No, I am not a journalist actually, you know.
Suma Chakrabarti: No, you are good. You can be though. You should be.
Hoshimov: I mean, I do it for some sort of public benefit. Like, you know, I part of it is educational too. So a lot of students watch it and then they comment and they think about it. I think this is part of my service to the country. I mean, I am doing my Ph.D. here.
Suma Chakrabarti: I think it is great that you are doing it and I had never met you before, but you know, my whole unit, everyone knows your stuff. All of them, well, all the Uzbek staff knew it, so.
Hoshimov: I write in Uzbek. I mean, I do not write for the Western audience, maybe I should, but I write primarily for locals.
There is a theory in economic development that says, once you have a certain level of growth, then good economic institutions or political institutions will come along. The competing theory says “no”, you have to sort of first build the institutions, and then growth will follow. Obviously, I am creating this fake dichotomy. Obviously, both things are important, but just, for a moment, where do you stand on this debate?
Suma Chakrabarti: I think personally it is a more iterative process. I think, you know, this has shaped my own experience. Let me just tell you, I started my career in Botswana, in Sub-Saharan Africa, Botswana had the good fortune to find diamonds. And once it found a diamond, this was before it had good institutions, it then realized in order to make something of that, it had to build the right institutions, find how to deal with it. What is the contract to have with De Beers? What is the sort of institution you need at the central bank or ministry of finance to deal with these things? And then also how would you make the revenue share out fairly amongst people? So suddenly institutions became built at almost in tandem as the diamond revenue started coming in. And there is an iterative process. I highlight Botswana not just because I was there, but it is regarded by people who write about this as one of the best examples of these histories of the process with institution-building with economic growth. I think the same in other countries, Japan, Korea, you could see the institutions were growing alongside economic growth rather than one before the other. But then to sustain, I think the important thing is to think about the second stage, the sustaining of the economic development you do by then need to have good institutions because you can decay very easily as well. If you do not have those good institutions you have heard about, the middle-income trap and so on partly sometimes are caused by the institutions actually not being sufficiently strong. So, in my view in Uzbekistan, we really do need to build these institutions because suddenly we have got this major push on reform and that'll continue under this president. So, it really is absolutely vital to be building institutions at the same time, because with this reform, progress will not be sustained otherwise. Every single question that you asked me and every single answer I have given, I think, there is always been some institutional issue, an institution issue. I think that tells me that institutions really do matter in terms of creating the momentum for change and development, but it is iterative. I do not really believe that you suddenly start with the perfect institutions and then growth comes, life does not work like that.
Hoshimov: I have the very last question, what do you think of political institutions and political reforms?
Just to shape our discussion here: when it comes to fiscal policy, I follow fiscal policy quite closely, the parliament, basically rubber stamps whatever decision that the government makes. The courts are largely dependent on law enforcement. If you look at a lot of indices, in terms of the rule of law, as you mentioned, it is the main point of concern and we got the lowest scores in there. I am not saying those indices are good actually, we have just talked about gaming them, and but on these, I think, they (indices) are pretty accurate. The indices say that the constraints on government power are very limited and with respect to the courts, with respect to law enforcement, and so on. And so how would you think about economic growth in the light of these? Do you think we should refocus our efforts on those issues or should we continue thinking about privatization and so on and so forth?
Suma Chakrabarti: Look, I think you are right. You, I do not think you should wait to, just, get all the economic reforms and then think about this. I think what you are describing is a political economy issue, which is also very important. And in the Uzbek system, I think it is not possible for parliament to reform itself to suddenly say, oh, I am going to hold to account the government more than before. I think, the government and the president probably have to make the first move and say, actually it would probably be better for us for the quality of policymaking if there were more challenges from parliament. So when we discuss some aspects of the budget from the aspect of fiscal policy, let us say education policy or whatever, we do want you to challenge us and discuss, at least. I am sure we would not say we want you to challenge us, but at least it lets us discuss openly whether the balance is right between primary, secondary, tertiary education, for example. Or how are we getting enough focus on the STEM subjects compared with, you know, and that I know is one of my issues in Uzbekistan, is not enough focus on STEM subjects.
You know, that sort of debate can be encouraged by a state that feels confident. It does not feel, you know, any problem to have that debate. And there is no problem in having the debate, you know there is no risk really in that. So I would start, I think parliament is actually a good place to start that sort of slightly shifting, if you like, in terms of holding governments to account. So I would go there for sure.
Hoshimov: Thanks a lot, it was really nice talking to you and I really enjoyed our conversation, and I can go on of course. I hope to see you soon in Tashkent or, you know, anywhere else, and talk to you again. So thank you for being a great guest of our program and wish you all the best. Thank you.
Suma Chakrabarti: Thank you very much, Bekhzod. It was really enjoyable to talk to you and I look forward to seeing more of you, maybe in Tashkent but also reading your stuff as well - Hoshimov’s Economics.