Although characterized by one of the lowest per capita incomes in the Central Asian and other post-Soviet republics, Uzbekistan's rich reserves of gold, oil, natural gas, coal, silver, and copper provide a promising endowment for future development. As a major source of cotton for the textile industry in the former USSR and the world's third largest cotton producer, Uzbekistan has a predominantly agricultural economy. Agriculture and agroprocessing accounted for about half of GNP in 1996. In addition, much of the industrial production is linked to agriculture, including cotton harvesting equipment, textiles, and chemical fertilizers and pesticides. Only 12% of Uzbekistan's total cotton production and 60% of its silk cocoons were processed locally in the early 1990s, reflecting the country's principal role as supplier of raw material goods for downstream manufacturing elsewhere in the former USSR.
Uzbekistan has a centrally planned economic structure in which most production and employment remains in the state sector, and all health, education, social security, and welfare services are provided by the government. Measures taken toward establishing a greater market orientation within the economy have been more cautious than in many other post-Soviet countries. A differentiated process of price control liberalization was applied to the wholesale and retail sectors in 1991 in an attempt to avoid socially destabilizing surges in consumer prices. Nevertheless, inflation ran 790% in retail prices and 2,700% in wholesale prices in 1992; by the end of the year, real wage earnings had declined by 56%. The disruption of trading arrangements with former Soviet republics and the cessation of transfers from the Union's central government is evident in the erosion of other major economic indicators since 1990. In addition to a seriously deteriorating fiscal balance, estimated GDP shrank by 17% between 1991 and 1994. Following a breakdown in agreements over the conditions of a new ruble zone with Russia and other CIS countries, Uzbekistan adopted its own currency, the som, in late 1993.
When it became apparent that the slow pace of economic reform was not working, the government increased efforts to move from a command-driven to a market-oriented economy. Reforms included tighter monetary policies, cooperation with international financial institutions, increased privatization of state owned enterprises, and an improved environment for foreign investors. In response, the economy slowed its decline to 1% in 1996 and the inflation rate dropped to 35%, down from 1,300% in 1994. Additional reforms announced in 1996 aimed at increasing the private sector's share of GDP to 60%.
In 1999, the state continued to dominate the economy. GDP grew by 2.5% in 1997, and 4.4% in 1998, despite the Russian and Asian financial crises. Inflation was at 71% in 1997, but fell to 29% in 1998. In 1999 growth was 4.1% and in 2000 4%, while inflation persisted at annual rates of 29% and 26% respectively. Continued inflation and a growing debt burden combined with the global economic slowdown in 2001 to reduce real growth to 3%.