macroeconomic reform programs; nor at the same time have the development and implementation of these other refoim objectives been adequately inforned by the market-oriented goals of enhancing competitive forces.

_Removing_ **_Barrier. to_** _New_ **_Entrants and Restructurinig Incumbents._** In general, the emphasis of the existing competition policy regime has focused on dealing with the regulation of incumbent firms. But as part of the broader objectives of encouraging structural reform and the transition to a market system, a greater orientation is needed towards generating growth through the formation of new enterprises, not just via privatization of existing SOEs, but niore importantly, through "greenfield" entry of new start-ups--both domestic investors and foreign investors. The experience of many other transition economies suggests that new entrants, particularly small and medium enterprises (SMEs), are the engines of growth and job creation. In Uzbekistan, recent surveys suggest that potential new businesses face substantial administrative and policy barriers to entry, including elaborate licensing requirements at both the national and local levels; impeded access to foreign exchange; difficulty in arranging for financing from banks or other sources; arbitrary and burdensome taxation;, difficulties in arranging for product distribution, among others.<sup>5</sup> Focusing on developing solutions to these problems as part of the broader structural reform agenda is critical to boosting competition.

**_Exit of Nonviable Firms and Hardening Budget Constraints._** By the same token, relatively little policy ermphasis **has** been directed toward facilitating bankruptcy, including where necessary, liquidation, of insolvent firms in Uzbekistan. The concerns about the potential social costs of such actions is understandable. Yet, with adequate social safety nets in place, such costs can be substantially reduced. International experien,ce can provide to the Uzbekistan authorities iimportant lessons about the benefits of reducing fiscal and financial subsidies to firns-"hardening budget constraints"-to engender improved corporate competitiveness from viable firms and to expose those t]hat are no longer commercially viable. Indeed, viewed from the broader structural reform perspective, the bankruptcy process engenders important benefits: it provides for the re-channeling of productive assets bottled up in inefficient firms to new ventures where employment can be expanded and new Products created. Importantly, facilitating the bankruptcy process should not be seen as simply in the purview of the government; indeed, on the contrary, the main focus should be on strengthening the legal rights of creditors in Uzbekistan. In turn this means accelerating reformn of the country's banking system to one where banks' credit, lending and debt collection decisions are scrupulously made on the basis of commercial and risk criteria. Exacting such external discipline on the performnance of firms in the real sector will go along way to fostering the competitive restracturing of Uzbekistan' s industry.

**_Openness to International Trade and Liberalization!_** _of_ **_Foreign_** _Exchange._ Trade and foreign exchange restrictions in Uzbekistan are pronounced. They serve to shelter noncompetitive industries from market forces and as a result encourage misallocation of resources, lost output and poor product/service qualily. Restrictive trade practices, such as r egistration and prepayment requirements for imports and high average import tariffs, were enacted in 1997 and remain in place. State trading monopolies for cotton and gold exports, which generate approximately 40% of the country's foreign exchange earnings, also undermine competition within the economy. At the same time, the dual exchange rate systemi and foreign exchange surrender requirements engender gross structural distortions in the economy. Removal of the trade and foreign exchange restrictions is widely seen as a pre6ondition for enhancing the competitiveness of the economy and for putting Uzbekistan on a path for enduring growth. Indeed, although liberalization of the foreign exchange regime is often seen as a macroeconomic policy objective, its impacts on advancing the competitive structure of the economy are as critical. Equally important, accession to the WTO provides an important vehicle to reform the country's trade regime ;and to lock-in, under international commitments, the removal of existing trade restrictions;

> 5 LaFleur (1999); AMCHAM Uzbekistan (1999).

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