As part of the annual state program agenda, the year 2009 was announced as “The Year of Improvement and Development of the Agricultural Sector” in Uzbekistan. Therefore, a number of legislative acts, projects and initiatives were directed at improving working and living conditions for people in rural areas. As was highlighted by President Karimov, issues of paramount importance include those related to further development of infrastructure in the countryside: “housing construction, supply of natural gas, drinking water, energy, reparation of the roads, transport and communication services…”. In line with the agenda of the current year, on 30 March 2009 President Islam Karimov signed two resolutions: “On the establishment of the joint stock credit bank “Qishloq Qurilish Bank” (Bank of Agricultural Construction)” and “On the foundation of the joint stock credit bank ‘Agrobank’”.  The two banks are organized on the basis of the already existing “Galla-bank” and “Pakhta bank”. The transformations are expected to help improving the development of the agricultural sector. However, besides change in organizational arrangements, the new banks do not seem to bring that many changes to the lives of countryside inhabitants.

As the text of the resolution suggests, the purpose of the present bank transformations is “further sustainable development of the agricultural sector of the economy, consecutive deepening of the economic reforms in the agriculture, support of the farmers’ movement and strengthening of its economic and financial basis, offering agricultural producers a wide range of bank services directed at advanced establishment of modern enterprises of processing agricultural produce, implementation of modern technologies and equipment that would generate high-quality, competitive production and saturation of the internal market with the domestic foodstuffs.” Thus, the intentions of establishing new banks seem to be in line with this year’s state program.

The banks that existed initially – the “Galla bank” and the “Pakhta bank”, were founded in 1994 and 1995 respectively. The activity of the former was related to financing the grain-producing enterprises, and the latter sought to provide credits for the agrarian sector of the republic. Therefore, the banks have already been operating in the designated areas. For instance, owing to the 100 million soms credit obtained from the “Pakhta bank”, the “Golden Bird” Co Ltd. of the Andijan region was able to purchase modern technology and to set the growth of thoroughbred chicken last year. Last year, however, the shareholders of the banks decided to increase the authorized capital of the banks and issued more stocks. Thus, for instance the authorized capital of the “Qishlok qurilish bank” will constitute 150 billion soms ($105 millions).

The “Qishlok qurilish bank” will operate crediting for the improvement of the outlook in the villages and of the housing conditions of people living in the countryside, advance the development of industrial and social infrastructure in the rural areas and introduce the system of long-term preferential crediting of housing construction. The main purpose of the “Agrobank” is to provide a range of banking services to assist development in the agrarian sector. Therefore, the activity of the newly established banks could well have been performed by the banks at place with just an extension of their functions.

Interestingly enough, the biggest changes seem to take place in the organizational part of the banks. While the new banks are legal successors to the previous banks on property, financing and other liabilities, both of them will take the form of public corporations. Moreover, the “Qishlok qurilish bank” will be exempted from income and property taxes until January 1, 2012.

The Cabinet of Ministers will confirm the appointment of the “Agrobank” Council members and the Ministry of External Economic Relations, Investments and Trade together with the Ministry of Finance and the Central Bank are charged with assisting the “Agrobank” in attracting the preferential credits, investments and grants of international financial institutions and foreign financial-crediting structures for strengthening the bank’s resource base.

In general, the intentions behind the establishment of the banks designated for providing credits to farmers for building houses or improving conditions are good. However, banks are merely financial institutions that provide resources and expect their return together with interest. Thus, even though the establishment of special agricultural banks is part of the state program, it is unclear how exactly it will improve the situation of the farmers that sometimes simply do not have enough funds to take credits from banks.