Uzbekistan has adopted a state-led, gradualist path to market reform. This paper outlines its step-by-step approach: liberalization of prices, (incomplete) stabilization, small-scale privatization, corporatization of state-owned enterprises and incipient, mostly “inside” privatization. Legislation has included tax and banking reform, welfare provision through the neighbourhood mahallah system (which also provides control), and protection for foreign investors. Uzbekistan has redirected its trade to world markets, earning better prices for its cotton, gold, and other minerals than it received under the USSR. For several reasons, though, it has received very little foreign direct investment. While trying to expand its international trade and investment, it has nevertheless increased self-sufficiency in food and energy, occasionally also in consumer goods. By expanding its trade and services sectors and maintaining administrative control over exportable agriculture and mining commodities, Uzbekistan has managed about 4% real growth since its mild transition recession ended in 1996. The most important setback on the “Uzbek road” was the period of inconvertibility and multiple exchange rates from 1996-2003, during which manufacturing stagnated. At present Uzbekistan, which has returned to current account convertibility, officially states that it has achieved an overall GDP level, relative to 1991, ahead of all other CIS countries.

Uzbekistan has managed latent conflicts with its neighbours over water allocation, borders and trade without significant use of force since 1992. Its reluctance to enter into workable regional cooperation agreements, however, has prevented the region from developing any meaningful economic, political or military integration beyond a common effort to hold off drug smuggling and terrorism from the south.