Uzbekistan: Police Crackdown on Currency Traders Signals Elite Infighting

Shortly after lunchtime on March 20, a boxy, old Zhiguli sedan pulled up near the Mega Planet supermarket in Tashkent, a notorious hangout spot for illegal currency traders.

The money changers keep heavy bricks of tattered, low-value Uzbek sum notes in carrier bags in the trunks of their cars. Unfamiliar customers are normally treated with suspicion, but one dealer, Rasul, took the risk with the newcomer emerging from the Zhiguli.

The pair chatted cordially enough, only for the customer to suddenly shout "Ushlaimiz!" (Grab him!). Another two young men - plainclothes cops, like their accomplice - pounced from the Zhiguli and, after a short tussle, wrestled Rasul to the ground and slapped handcuffs on him. The fall must have been a hard one, because the blood was pouring down Rasul's face.

Onlookers, shoppers and a EurasiaNet.org correspondent quickly gathered at the scene.

As the other traders scattered, uniformed policemen suddenly appeared. Most of the traders got away, but one was caught as he tried to start his car.

Occurrences of this kind are happening more regularly of late, as authorities embark on their latest - possibly quixotic - drive to eliminate the currency black market.

The fate of the Uzbek sum is on most people's mind these days.

Since the start of March, the black market value of the currency against the dollar has taken yet another of its periodic tumbles - from 7,200 to around 7,700, as of March 20.

Black market rates can vary for many reasons, but recent movements are linked in part to a slight loosening of the official rate by the Central Bank. The bank sets the official foreign exchange rate every Tuesday - it is currently around 3,500 sum to the dollar. And for two weeks in a row, the Central Bank allowed the sum to depreciate by 50 to the dollar. The black market reacted by sliding even faster.

To keep that scissor effect from developing too fast, authorities have deployed squads of police on the streets in raids like the one at Mega Planet.

The sweeps began on March 16, which has driven the traders further underground, shrinking the volume of sums to be found. Police are keeping their cards close to their chest for now about the scale of their crackdown. Tashkent police announced that a campaign was underway on March 17 - only after the fact had been picked up in the media - but declined to give any details.

"The results of the special operations against currency traders will be made public in the coming days," a police spokesman said. No details have yet been forthcoming.

In another out-of-the-norm development, those who are detained are kept in jail, instead of being released after a few hours, as usually occurs.

It is an open secret that currency traders operate under the protection of corrupt top officials. Police often turn a blind eye to money changers operating in plain view. Even getting hold of large amounts of sums - a tricky currency to source in useful amounts through the proper channels - is all but impossible without help from high-ranking insiders.

One street-level money trader, Dilrukh, told EurasiaNet.org that police have detained a major player in the Tashkent currency business, Asliddin, who is known better by the nickname Asl. Others have named the detainee as Asliddin Hakimov - an individual known to circulate among the nation's elite.

According to people familiar with the currency business, Asl controls all the trading in Tashkent's old city.

The detention of Asl - the nickname is a term that translates loosely as "The Real Deal" or "The Chosen One" - has left many people stunned.

The raids have led to a notable downturn in trading. Not just because they have made it more difficult, but also as, according to another trader, Mavzuna, there is a wide expectation the sum is about to slip even further, possibly to 8,000 against the dollar.

That assessment is shared by economist Yuliy Yusupov, who explained that the recent spike of the dollar and later fall in demand is part of a cycle. Anticipating sharp devaluations, many people holding large amounts of sums try to turn them in for dollars. The resulting glut compounds the devaluation, which then spreads jitters and momentarily freezes demand.

Yusupov said the authorities are ultimately responsible for the slide of the currency, which he said they have failed to prevent by means such as an injection of foreign currency into the system.

This sequence of events began in late November, when then-acting President Shavkat Mirziyoyev issued a decree aimed in part at "developing and increasing the efficiency of the domestic foreign exchange market."

The bland bureaucratic language disguised an ambitious and politically perilous agenda.

Developing a legitimate currency exchange market implies going head-to-head with the powerful vested interests that control the informal economy. Those individuals are generally assumed to be top-level figures in or close to the National Security Service - a successor body to the KGB that has ballooned in proportion since the collapse of the Soviet Union. (Indeed, some believe that it is telling that the ongoing raids on currency traders are being handled by the police - the Interior Ministry - instead of the security services.)

Mirziyoyev's putative allies in this showdown would be the vast community of small and medium business owners - especially those working in import and export - whose operations have been made largely untenable by the lack of regular access to hard foreign cash.

As the ongoing plight of one such entrepreneur, fruit and vegetable exporter Olim Sulaimanov, has shown, however, the security services retain their willingness and ability to exact punishment against those that step out of line. Sulaimanov achieved a burst of fame late last year by posting a video on the Internet complaining about bribe-taking officials, but he is now himself in jail facing corruption charges that his supporters say are utterly without merit.

The more meaningful support may come from the international community. Earlier in March, a high-level European Bank for Reconstruction and Development delegation visited Tashkent with a view to resuming operations in Uzbekistan after a decade-long hiatus.

And EBRD representatives have been clear in their reports on what they see as the single most pressing issue for Uzbekistan's economy.

"Currency controls need to be gradually relaxed. Stringent currency controls in the country are having an adverse effect on the ability of businesses to carry out their export/import-related operations, and they need to be gradually removed. The exchange rate unification is also an important pre-condition for creating a more sustainable economy and improving the environment for doing business," the EBRD noted in its Uzbekistan assessment for 2016-17.

Where the EBRD goes, foreign investors may follow. At least that is what Mirziyoyev may be banking on.