EURO REPLACES USD IN OFFICIAL ACCOUNTING AND

UNCLAS TASHKENT 001995 SIPDIS SENSITIVE SIPDIS DEPT FOR SCA/CEN E.O. 12958: N/A TAGS: ECON EFIN UZ SUBJECT: EURO REPLACES USD IN OFFICIAL ACCOUNTING AND TOURISM SECTOR SENSISTiVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY. ¶1. (SBU) Summary: The Uzbek Government officially switched from USD to euros for accounting and financial management. The tourism industry followed suit, and is also raising prices to keep up with high inflation. The GOU likely is concerned over the depreciation of its USD 2.3 billion in reserves. End summary. ¶2. (U) On November 7, a Presidential Resolution was announced instructing banks to switch from USD to euros in accounting and financial management. Starting on January 1, 2008, the minimum charter capital for local banks will be fixed to the euro equivalent: five million euros for commercial banks and 2.5 million euros for private banks. ¶3. (SBU) In connection with this resolution, the tourism sector appears to be adopting the euro as well. The state-owned Uzbek Airways recently changed its price scheme to euros. In Tashkent, restaurants catering to tourists have new menus with only euro pricing. These restaurants have taken the opportunity to increase prices by as much as 25-40 percent as well. (Note: This price hike reflects the unofficial inflation rate, but the tourist restaurants are the only ones so far to raise prices so drastically. End note.) Econoff has heard reports that in the tourist cities of Bukhara and Samarkand, vendors are speaking in euros, not dollars. Comment -------------- ¶4. (SBU) Only one year ago, it was difficult to exchange euros into soum easily . The tourism sector, aware of global market forces, is reacting (if not over-reacting) to the depreciation of the USD. The average entrepreneur and small size enterprises have yet to react similarly, though eventually they will catch on. ¶5. (SBU) The depreciation of the US dollar worries the government, especially as it holds over USD two billion in reserves. In the GOU's mind, the more reserves it has, the more independent it is. Uzbekistan's gold exports have fallen this year. While a main reason for this may be the loss of its American business partner, Newmont Mining, it is also possible that Uzbekistan is stockpiling gold in order to protect against its depreciating reserves. NORLAND