Foreign debt matters???? or not?

[optimist]

Hello,

Well, guys, lately there has been a sharp fall in our interest in finance-economics related discussions,

To enliven the real events oriented discussions, I would like to suggest a very interesting topic to discuss(i think so), and which to a high extent is important for our country as well,

That's is foreign debt, its role in economic policy of a country, and specificly Russia'a debt to London Club and Paris Club of creditors, also Uzbekistan's foreign debt. How much foreign debt and foreign and gold reserves do we have? What do we use foreign debt for: to sustain a fixed exchange rate, or to provide government small credits to sole entreneurship projects, or in the worst condition to survive?

To be frank I am not well informed about this topic, impact of foreign debt policy, Russian default in 1998, and moratoriums to Latin American Countries' debts as Brasil, Argentine, Mexico, etc. The role of IMF in restructuring of debts, in general, in world economy??

So, I believe, we can make a sound discussion of this very interesting and significant topic, why not?

so, desperately waiting for a start,

OPTIMIST ;p

P.S There is an informative site relevant to this topic
http://www.bradynet.com

[Iranyar]

Yes foreign debts matter ofcourse. I do'nt want to clarify it with the technical formula of freemarket theoriethicians.I approach it according to my own disciplin , Social sciences, and according to this appraoch the answer is very easy why it matters, beacuse of dependency. (dependencia theory) also see the centre periphery model of Gultung (espeally the multiple centre-periphery model)

[sanatullo]

Well Optimist,

If you know http://www.bradynet.com, why you asking question on the foreign debt? ;-)

My personal answer is that "It depends on case of a specific country.;)"

As for Uzbekistan, don't worry, I think, our 3.8 billion dollar foreign debt is on the sustainable level, that is our debt depends on some variables like debt service, the ratio of trade to the foregn debt, etc. and they are somehow good. Btw, most of that debt is used as an investment not as consumption or spending for some structural changes. Also as far as I am observing, last year Uzbekistan currency reserves were almost equal to its 4.6 monthly imports. Lately, I have read that the government was able to increase it to the stardardized six month level. Besides, I think, government should have established the strong position for the last two years since Uzbekistan had cumulative positive trade balance of about 490 million dollars on the centralized and on the controlled decentralized foreign trade.

Also most of our reserves are in term of gold. From one side, it has some disadvantages while from other it has some advantages. If you are interested in the latest data on the reserves, you may get them from http://www.imf.org. Usually IMF is used to keep and collect such data.

Well, as for Russia. Ajab bo`lsin degim keladi.;-) Lekin bir jihatdan Ivanlarga rahmim keladi.:) In general, I think those Russian and Latin American defaults are mainly due to the foreign exchange rate system. Inspired by most of the world known economists, I am also for the side of those who think that a country should maintain either the completely free exchange rate system or the completely fixed exchange rate system. I think anything in between create such default cases like in Russia or in Brazil. Also I think in those cases, the government intervention would be another bullshit try policy against the market forces which will further worsen the case. Besides, most of the arguments of those economists are based on the following two notion: "if the market forces are against the country, the fundamentals require that", and "if the government is for favor of the country, the politics requires that." Besides, some other reasons is the debt trap case for those countries. I think once the country got into the debt trap it gots extremely difficult to get out of that. The only thing that might change that is the fundamental changes inside the country. If the government can't change the situation it gets worsen day by day, and etc. That is very bad, of course. But again from other side, the easiest way to get out of debt trap is linked to the forex system. And again it won't help at the end. At last someday they find that fundamental changes are really needed. But it would be somehow late in some cases. That is it. :)

The last paragraph is really boring, don't read it. I am very drowsy, I am going to sleep. b

[patriot]

Sanatullo,
May I correct you on some figures please?
Uzbekistan's foreign debt amounts to around $4,5 billions but nobody knows the exact amount of reserves. As you say, Uzb. has enough reserves to cover imports up to 6 months. It is not correct. In october Uzb. had only around $1 billion reserves but in december had already nothing. Because last year we have started paying the debt back. Uzb. should pay back around $1billion. I don't know what happened, whether we payed or not?
Did you know that Uzb. had already experinced default??? In the month of November the ministry of finance gathered all the bankers and asked them to extend the maturity of t-bills for 1 months. Of course, they agreed.
Sanatullo, the trade surplus of Uzb. in 2000 was $317 millions and not $490 as you said.
I have spoken little time ago to one person from central bank of Uzb. He confirmed my words that currently Uzb. has not any means to liberalize the FX market. On monday, Islam Karimov told at the government meeting that Uzb. would need at least $2billion and even some more, to be on the safe side, in order to liberalize the currency market.
I could bring you much more facts but don't have time now. I will do it later...
Thanks...

[general]

Yes, it's not good, of course, to have such amount of debts, while we are not developing rapidly.
Great thanks to <Optimist> for raising this issue and to <Sanatullo> for some ideas and figures and <Patriot> for his exact figures.
However, I am not sure about one thing:how are we using these debts?
More than $4bln money is not nothing for Uzbekistan, there should be some reasonable outcomes.
Recently built factories and plants, like "Kukdumaloq", "Shurtangaz", "Zarafshon-Newmont", "Uzdaewooauto", as far as I know, are joint ventures. That means that, they are not solely uzbek assets, that's why initial capital also was not laid by only Uzbekistan.
So, <Patriot>, if you have some info about that, can share with us?

O'zbek

[sanatullo]

Patriot,

Your data on foreign debt might be true. Because, mine is as for the beginning of 2000. Besides, I have mentioned about the cumulative trade surplus during the years of 1999 and 2000, which is about $490 mln.

I also read (Economist's Intelligence Unit) that the government was somehow experiencing problems with finances. But I thought it was rumor.

[vasya]

I am not expert on economics but political effects of debt are huge. First of all it urges cooperation in any field and creates interdependence. Any creditor will be concerned about the developing pace of the debtor. Vis a vis a country will try to improve its credibilities to aquire a credit(e.g western nations were holding IMF loans to Russia when it went over abusing human rights in Chechniya).
From realist point of view foreign debt is usually used as mean of dictating and pursuing certain policies. Recent land claims of Uzbek government from Kyrgyz counterparts in exchange for gas bills could be an example.
In case of Uzbekistan i have no idea where from we got such a huge debt. As there is no clear indication of expending loans in Uzbekistan(e.g. Asian development bank spared several loans to building Toshkent-Osh highway, but if you go and check the construction you will have doubt about the usage of loans).
Personally i think government should be very credible about borrowing the loans, as debtness creates more political dependence.

[sanatullo]

Hey people,

Check this site for the details on the external debt:

http://www.oecd.org/dac/debt/htm/jt_uzb.htm

Regards,

[patriot]

Let me contininue my yesterday's message.
I have already took a quick look at the OECD page on external debt of Uzb., the page which was advised by Sanatullo. If have noticed yourself that the figures are not correct. To be honest, nobody (including OECD, IMF, World Bank) can give you the exact figures. They can only guess the exact data. Because the government does not disclose them. Nobody can get any data on how those foreign loans were used and whether they have been repayed or extended. Simply that data is not released.
As I have told in my previous postage, Uzb. should repay around $1 billions in 2000. There is no info whether it was paid or not. We can only guess, since nobody (international financial institutions) was making panic that Uzb. did fulfill its obligations then we may think that there was no problem and Uzb. had payed everything. But the main question is how??? The only means which could be used are international reserves, since IFI did not extend the maturity of loans. So, our reserves are almost fully utilized for the moment. What will happen in 2001??? This year's amount payable is also around $1billion. Again nobody knows the exact figure. Will Uzb. be able to service those debts and at the same time continue imports without reserves?
The government has drawen very aggressive plan on its 2001 revenues. Some new taxes were initialized, export is planned to increase significantly, new JVs or factories (like Shurtan) will start producing this year, others are planned to increase their output (like Uzdaewoo - last year it produced some 38,000 cars but this year's target is 60,000 , including new model of Matiz, the bulk of the production of Uzdaewoo cars will be exported to Russia, China and other countries).

It very very hard to draw any scenario since we don't have any exact data on anything. This is the main mistake of the government because they don't release any kind of data.

In order to ease the exports the government had to cancel licencing of enterprises for foreign activities. If you remember, in old times nobody was able to access international markets without obtaining a foreign activity licence from MFEA. I think there are many other licences to be cancelled which help companies or enterprises to breathe freely.

Another steps taken to increse revenues is massive privatization and denationalization. The list of such enterprises has increased almost ten-folds. Uzbektelecom, Uzbekneftegaz and other giants are among them. Of course the work on this issue was unsuccessful until now. Because Uzb. is not attractive at the moment at all. First condition required by foreign investors is liberalization of FX market. Mr. Karimov himself has told that country would need at least $2 billions and even more in order to open the fx market. Since we don't have anything (reserves) it (convertability) is not foreseen in the near future. May be Uzb. will be able to privitize some enterprises but under current conditions it won't be able to get good price because of the lack of interest.

Anglagaringladek, ahvol juda ham og'ir. Afsus, hich kaysi bir iqtisodiyotchi prognoz kila-olmayapti.

Another fact for you: annual amount of capital flowing out of Uzb. is exceeding $1 billion. Untill the goverment will not liberalize the market nobody will re-invest its earnings into there.

Some of you guys told that foreign debt of Uzb. is not significant at all and that the country could easily repay it. Yes, the amount is not so significant but still big. Taking into consideration that country has almost no means at the moment and no instruments to attract additional investments, this amount seems more than huge!!!

Uzb. had already experinced default in November. But this fact was not spoken out of the country since there are only few foreign investors with very small portfolio of uzbek t-bills. These are mainly foreign banks located in Tashkent, only Abn-Amro and Uzdaewoobank. They were politely requested not to share this info. Minfin told that t-bills would be repayed not at the maturity but in one month. I don't know what happened in one month.

One of the main disasters in the country is that the top management of the country does not have real picture of the situation in the republic.

Qisqachasi bollar, since we are not U.S.A. and therefore don't print dollars, we have to give up our isolation policy and integrate into world markets in order to attract those dollars into our economy...

[OPTIMIST']

Well, Patriot,

even if our government doesn't disclose such info on foreign debt, it can be easily obtained by getting to know who have lent to Uzbekistan, if any.

I have one more query, is our economy an open one, or isolated, as one of the guys put forward here, or does it automatically mean that its isolated since we don't have floating exchange rate? moreover, the government is trying to make Uzbekistan self provided in grain, wheat production, and alos by adopting the policy of import substitution, etc.

Last year, one expert from CabMin had told us at the UWED that Uzbekistan had to usel a huge part of its foreign reserves and gold reserves to serve its foreign debt, and to sustain a fixed rate of soum in relation to dollar and other currencies. Is it really possible to restore reserves to its suggested level of 6 month import value in such a short time?

I ll be back with my opinion about debt problems after I have studied the websites above, (I have so hand in 2 essays next week)

OPTIMIST ;p

[OPTIMIST']

Vasya,

u r right as for the political implications of debt,

its a common practice to reach political goals through economic means, its true forever,

OPTIMIST ;p

[optimist]

Sorry guys for continual posts,

Can't we adopt dollar as our national currency, as some countires have had this experience already????

any ideas?

BEK

[mustafa]

Ukaz N: XXXX-XX

Ministerstvu anti-monopolizazii resp. Uzbekistan priznat Ameriku monopolistom v pechataniy dollarov i rasreshit pechatat v tashkente.

Nu vot reshili vam problemu s dollarom.

Mustafa

[sanatullo]

Patriot,

Don't take it personal, but what you wrote is bullshit, man. I can't agree with you any more. First time, I thought you have some clue on what you are writing. Now, it seems you are not.

As for the detailed definition of those columns chech this site out:

http://www.oecd.org/dac/debt/htm/metadata.htm

As you see from that link the source of the statistics is included in that definitions. Although I think the above mentioned data might have some errors, they should be insignificant. It might not have included statistics on those countries that are outside reach of BIS, OECD, WB and IMF. It might have happened somehow that information don't contain on CIS and former socialist countries, countries like Iran and Pakistan, etc, and Asian Development Bank. But I think they should not be significant as your are proposing.

As for the treasury system of Uzbekistan and other FSU countries, you may read the following article:

http://www.imf.org/external/pubs/ft/fandd/2000/09/potter.htm

Yeah, I understand that somehow Uzbekistan's treasury system is sux. But it doesn't mean that those people working in the ministry of Finance are really stupid as you are describing them. At least, I think they know what they are doing.

Besides, I agree with the Optimist's opinion. Even if our experts don't know the situation, those western experts should know and try to know what is going on. Who want to take the risk if there is the great uncertainty? At least those western experts should not be that much stupid.

[sanatullo]

Optimist,

If you are interested on the answer of your question, check this paper. I am sure you can get enough information on your question.

http://dsl.nber.org:81/books/woodstock00/exchange12-15-00.pdf

If you have problem with that chech another site below, and pick up the paper with the following topic:

"Exchange Rate Regimes, Capital Flows and Crisis Prevention" by Sebastian Edwards of the UCLA.

http://www.nber.org/books/woodstock00/index.html

If still you have problems, it means your univer doesn't have connection to the NBER's site.

Regards,

Sanatullo

[sanatullo]

Mustafa,

LOL. :D I think I am :-S . BYE.

[qwerty]

Sanatullo : Can you post a link to currency options also?

Thank you

[sanatullo]

Alex,

Can you be precise? I aint get you, man.

[qwerty]

I've got a project due next week. My project topic is "Currency options". I thought you knew some sites pertaining contremporary issues in currency options.

[willStandForCountry]

Yeah, guys-you really came up with an idea of calling upon one of THE problems in this field. And I can see that you are pretty well informed in this area too. Being involved to this area in interantial scenarion and trying to help our country at least to lessen the basic problems and installing the ordinary things whihc are missing in order to operate and to maange the external debt management in an effective way, I realized that the problem is not only lack of money but also brains of some people who are involved in. They do not want to listen the people coming with the solutin of the problem, in thwe controrary do their best in order to make those specialists of IFIs run away for mthe country and giving the reports to IOs that our country does not want to get out fro mdebt trap in an optimal way rather choosing wrong ways of its own which it supposes the right way.

[ThisIsMee]

Okay it is easy.

Dollars are good, healthy, and tasty. So'ms are bitter and ill.
So, the more dollars we borrow, the healthier our economy is!!! Right..?

[Student-foreigner]

Can't we adopt dollar as our national currency, as some countires have had this experience already????
Any ideas?

Can't we adopt dollar as our national currency, as some countires have had this experience already????

any ideas?

BEK

If you have read about "Currency substitution" or in other words "Dollarisation" you perhaps should be aware of Pros and Cons of it. Even if Dollarisation has more Pros than Cons, significant disadvantages of it are observed. However, it is known that those countries which have replaced their national currencies with US dollar have better life know than they used to have. But eventually they all lose control over the monetary policy, because they all must rely on the FED's decisions. In addition they lose Siegniorage revenues too, which is believed to be huge and etc.

One can advocate currency substitution and say that the important result is the welfare effect. I agree that those countries which replaced their currencies with US dollar are better off than they were.

Equador which substituted its currency with US dollar is not better off as it was expected. This topic is still open, because it has been only few years since some of the Latin America countries replaced their national currencies with US dollar. The authorities are not interested in the short run affect. The important thing is the long run result. So, let' wait and see how they will cope with existing problems and what will happen to them.