VZCZCXRO4568
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHNT #1604/01 2570557
ZNR UUUUU ZZH
R 140557Z SEP 09
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 1314
INFO CIS COLLECTIVE
EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0086
RUEHBUL/AMEMBASSY KABUL 0116
RUEHIL/AMEMBASSY ISLAMABAD 0295
RUEHKA/AMEMBASSY DHAKA 0230
RUEHKT/AMEMBASSY KATHMANDU 0227
RUEHLM/AMEMBASSY COLOMBO 0230
RUEHNE/AMEMBASSY NEW DELHI 0281

UNCLAS SECTION 01 OF 02 TASHKENT 001604 
 
SENSITIVE 
SIPDIS 
DEPARTMENT FOR SCA/CEN AND EB 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV SOCI UZ
SUBJECT: UZBEKISTAN TURNS TO DEBIT CARDS IN INFLATION BATTLE 
 
¶1. (SBU) SUMMARY. In an effort to control inflation by limiting the 
amount of cash in circulation, the Government of Uzbekistan (GOU) has 
begun to mandate the use of debit cards. However, Uzbekistan remains 
a cash economy and although the debit cards can be used for payment 
in a limited number of stores, they are not accepted in the 
ubiquitous bazaars where most Uzbeks shop for basic staples. At the 
same time, banks are often unable or unwilling to pay out funds no 
matter how much money is in the account. This type of top-down 
measure is the norm here and ironically a consequence of import 
substitution policies that lead to a dual exchange rate and sustain a 
large, cash-driven gray economy. The demand for cash in the economy 
is a major driver of inflation and downward pressure on the exchange 
rate.  By introducing debit cards, the GOU is trying to control and 
curtail the amount of cash in circulation, mandating the use of debit 
cards for payments of salaries, pensions, various social allowances 
and for use in financial transactions. At the same time, cash has 
become increasingly scarce. Plastic is the substitute, and Uzbek 
citizens must now contend with debit cards and hope that the 
infrastructure for their use eventually emerges. END SUMMARY 
 
 
PLASTIC COMES TO UZBEKISTAN 
--------------------------- 
 
¶2. (SBU) Uzbeks are getting their first taste of plastic as the GOU 
seeks to impose the use of debit cards in an economy where cash is 
still king and most transactions are effected with stacks of 1000 
soum notes (approximately USD 66 cents), the largest note in 
circulation. The measure is an attempt to mitigate the consequences 
of other GOU economic policies that create serious imbalances in the 
economy and lead to significant inflationary pressures. 
 
¶3. (SBU) Most Uzbeks have little faith in the country's banks, so the 
demand for cash is high.  This is exacerbated by import substitution 
policies that place high tariffs on imported goods and limit access 
to foreign exchange, driving a substantial shadow economy that runs 
entirely on cash. With the banking system thus unable to absorb cash 
and lend for investment, cash circulates rapidly, chasing goods 
imported with dollars at ever rising prices and thus creating 
inflationary pressure. The GOU understands this challenge and, rather 
than liberalize exchange, has attempted to limit the supply of cash 
in the economy with the introduction of debit cards.  These 
heretofore unknown instruments of payment are now referred to simply 
as "plastic cards," reflecting popular belief that the aim of any 
government measure is simply to fleece the average citizen. 
 
 
MONEY SUPPLY THE UZBEK WAY 
-------------------------- 
 
¶4. (SBU) The first debt cards in Uzbekistan were issued by local 
banks in the late 1990s, but never saw widespread use. Only late 2008 
did the GOU begin its push to increase their use throughout the 
economy. In usual fashion, it has been policy rather than market 
forces driving this change. Businesses are now being forced to pay 
their employees not in cash, but by direct deposit.  Government 
employees, pensioners and other beneficiaries of social allowances 
are also seeing their funds deposited. Whereas there were less than a 
million debit cards in early 2008, by the summer of 2009 there were 
over 4.7 million in circulation. The target of the Central Bank of 
Uzbekistan is to have 6 million plastics in circulation by the end of 
the year. 
 
 
¶5. (SBU) Over the same period, cash has become increasingly scarce. 
Citizens and businesses attempting to withdraw cash from their 
accounts are told to come back in a week or a month.  The banks do 
not have cash.  Employees of many companies can go weeks or months 
without receiving their cash salaries, as their employers are simply 
unable to get access to sufficient quantities to meet their payrolls. 
 Even employees at the General Motors-Uzavtosanoat assembly plant in 
Asaka have not received their full salaries for the past three months 
due to the lack of cash. 
 
¶6. (SBU) Millions of people given debit cards that, in theory, allow 
them to access their funds whenever they wish, also find that they 
are unable to withdraw cash from banks or ATMs with the cards. This 
may not be a problem were the infrastructure to support electronic 
 
TASHKENT 00001604  002 OF 002 
 
 
payments developed, but there are still few establishments even in 
Tashkent that accept debit cards as payment, much less in the 
provinces. Moreover, small businesses themselves need cash to pay 
their suppliers and are thus reluctant to accept debit cards, as they 
too will have difficulty withdrawing cash from a bank.  In the 
bazaars, where the vast majority of Uzbeks shop, debit cards are 
unheard of. 
 
TURNING PLASTIC TO CASH 
----------------------- 
 
¶7. (SBU) Residents of Tashkent are finding resourceful ways to 
withdraw cash on their debit cards.  One approach is to go to an 
office that accepts payment for municipal services.  There the 
hopeful card holder waits for a fellow citizen to appear with cash in 
hand to pay for gas, electric, or other utilities (all utility bills 
in Uzbekistan must still be paid in person).  When such a person 
appears, the card bearer steps forward and offers to pay that 
citizen's bill with plastic at a mutually beneficial exchange rate. 
(NOTE: Municipal services offices are required to accept debit 
cards.)  The citizen's bill is paid, and the happy card-bearer 
departs with cash in hand.  This method is also common at upscale 
Tashkent grocery stores that accept debit cards. 
 
¶8. (SBU) Unfortunately, this method does not work outside the 
capital, where even municipal services offices are rarely equipped 
for debit card payments.  There Uzbeks turn to a time-tested method 
in this part of the world:  bribery.  Although a bank may claim to 
have no cash on hand, individual cashiers will suddenly find cash if 
a card holder offers a 5-10 percent service fee. 
 
 
COMMENT 
------- 
 
¶9. (SBU) Not content to control only the "commanding heights" of the 
economy, the GOU's top-down model affects nearly every aspect of 
economic life.  For their part, citizens try to find creative ways 
resist at every turn. In attempting to control inflation and rein in 
the informal sector through the introduction of debit cards, the GOU 
is largely fighting the logical consequences of its own policies. The 
Uzbek economy continues to produce robust GDP growth (mainly due to 
stable external demand for its natural resources) but functions with 
scant attention to the financial needs of individual citizens. It is 
the average Uzbek who is left to find ways to survive in the space 
between policy and the real economy. 
NORLAND