May 2000 - Like many Central Asian republics, Uzbekistan has adopted a gradual, cautious approach in its transition to a market economy. It has had some success attaining macroeconomic stability, but microeconomic reforms have lagged behind. It is time to accelerate structural reform. In Uzbekistan state enterprises are being changed into shareholding companies, and private enterprises account for 45 percent of all registered firms. But business decisions to set prices, output, and investment are often not market-based, nor wholly within the purview of businesses, especially those in commercial manufacturing and services. Lines of authority for corporate governance - from state enterprises to private enterprises - are ill-defined, so there is little discipline on corporate performance and little separation between government and business. Nascent frameworks have been created for competition policy (for firms in the commercial sector) and regulatory policy (governing utilities in the infrastructure monopoly sector). But implementation and enforcement have been hampered by old-style instruments (such as price controls) rooted in central planning, by lack of a strong independent regulatory rule-making authority, by the limited understanding of the basic concepts of competition and regulatory reform, and by weak institutional capabilities for analyzing market structure and business performance. Based on fieldwork in Uzbekistan, Broadman recommends: · Deepening senior policy officials' understanding of, and appreciation of the benefits from, enterprise competition and how it affects economic growth. · Reforming competition policy institutions and legal frameworks in line with the country's goal of strengthening structural reforms and improving macroeconomic policy. · Improving the ability of government and associated institutions to assess Uzbekistan's industrial market structure and the determinants of enterprise conduct and performance. · Making the authority responsible for competition and regulatory policymaking into an independent agency - a champion of competition - answerable directly to the prime minister. · Strengthening incentives and institutions for corporate governance and bringing them in line with international practice. · Subjecting infrastructure monopolies to systemic competitive restructuring and unbundling, where appropriate. For other utilities, depoliticize tariff setting and implementation of regulations; ensure that price, output, and investment decisions by service suppliers are procompetitive (creating a level playing field among users); and increase transparency and accountability to the public. This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Regional Office - is part of a larger effort in the region to assess structural reform in Central Asia. The author may be contacted at hbroadman@worldbank.org
