Kyrgyzstan seeks economic lifeline
By Asyl Osmonalieva
BISHKEK - The Kyrgyz government is under pressure to accelerate efforts to
soften the impact of its continuing economic crisis, as figures confirm the
extent of the downturn.
When ministers met businesspeople at a conference on August 4-6 to discuss the
next phase of the "anti-crisis plan" the government has been implementing since
the start of the year, they agreed that speed was of the essence if the country
was to be steered through the global economic turbulence. The discussion
centered on how the business sector believed banking, industry, agriculture and
tourism should be supported.
"The country is experiencing a decline in production, trade and the service
sector. Swift action is needed to stabilize the
situation," First Deputy Prime Minister Omurbek Babanov told a press conference
a day after the meeting, which he chaired.
The idea of engaging the business community in taking the anti-crisis plan
forward was announced by Prime Minister Igor Chudinov at a July 28 cabinet
meeting. Chudinov made it clear that existing plans would have to be revised as
the economic situation was worse than anticipated.
According to the national statistics agency, the economy grew by only 0.3%
year-on-year in the first six months of 2009, compared with 7.5% in the same
period last year. Industrial production fell by nearly 19%, in part because of
a slump in exports.
"The world financial crisis, which has impacted all world economies, has also
affected our country," Bolot Toksobayev, head of the department for
macroeconomic analysis and forecasting at the Ministry of Economic Development
and Trade, told the Institute for War and Peace Reporting (IWPR). "Kyrgyzstan's
main trading partners, Russia and Kazakhstan, reduced the volume of
manufactured goods they buy from us. Falling domestic and external demand led
to a decline in industrial production as enterprises can't make a profit if
they are producing just to stock the warehouse."
Energy shortages, caused by low water levels in the Toktogul reservoir, which
powers the country's biggest hydroelectric scheme, compounded the problems
facing industry. The economy has also suffered from a decline in the amount of
money sent home by the hundreds of thousands of Kyrgyz nationals working
abroad.
Reflecting the continuing deterioration, the International Monetary Fund (IMF),
has scaled down its growth forecast for the year to 0.9% from 3.7%. The IMF
says external assistance, particularly a large Russian financial package
approved this year, is essential to helping the Kyrgyz economy weather the
storm and keeping the government solvent.
Present government policy includes efforts to boost budget revenues, build new
industrial units and ensure a good harvest, while hoping that Kyrgyzstan's
trading partners begin to recover so that exports start rising.
Toksobayev said money had been earmarked for a development fund that will be
used to revive moribund industries and back major new projects, for example a
new cement factory in Kyzyl Kiya in the southern Batken region and a metals
plant in neighboring Osh.
The obstacle to progress on these schemes, he said, was unnecessary levels of
bureaucracy.
"We have to clear away the bureaucratic obstacles. It is these obstacles that
are holding up the process of starting up plants which could even now be
earning money for the national budget and providing people with jobs," he said.
Analysts have welcomed the government's determination to address the crisis,
although they warn against depending on forecasts that the global economy will
recover rapidly, helping Kyrgyz exports.
As Kairat Kasymaliev of the Bishkek-based investment company MGN Capital notes,
"In March, the situation on world stock markets temporarily stabilized,
triggering optimistic statements by some experts that the crisis was over. But
then the situation got worse again. Now we're again seeing an economic revival
[in Kyrgyzstan], although it's quite possible this is a temporary phenomenon."
Toksobayev agreed that it was premature to be talking about a worldwide
recovery. "Currently, the crisis is being weathered because of the money
countries have invested in addressing it, but when that has been spent, it is
very possible the crisis could repeat itself," he said.
In February, President Kurmanbek Bakiev secured a Russian pledge to invest
US$1.7 billion in a hydroelectric scheme, a $300 million loan to support the
government budget, additional financial assistance worth $150 million and a
write-off of $193 million in sovereign debt, granted in exchange for a stake in
a Kyrgyz defense plant.
Analysts agree with the IMF view that support from Russia and other donors and
lenders will help cushion the economic impact of crisis.
Nurbek Elebaev, who chairs the board of Kyrgyzstan's stock exchange, says it
would be worth seeking more loans on soft terms from countries like China, as
long as the authorities ensure the money is properly invested in the short term
so that it will bring swift and productive returns that benefit the country.
Another prediction on which the authorities are pinning their hopes is that the
harvest will be a good one, ensuring the country has adequate stocks of food to
take it through next winter. The Agriculture Ministry is forecasting a grain
harvest of 642,000 tons, a 14% increase on last year.
As analysts like Kasymaliev point out, hoping for the best is not enough.
Better planning, led by the Agriculture Ministry, is needed to avoid
unnecessary shortfalls in the production of particular foodstuffs, he said. At
the same time, Kasymaliev dismissed fears of major food shortages.
"The situation last year, when the harvest was destroyed by an unusually severe
drought, could be described as a shock, but this year we haven't had anything
of this kind," he said.
Bakay Junushev, director of the iCap Investment financial services firm, noted
that Kyrgyzstan has experienced crises of one kind or another for the past
three years. The likelihood is that people will endure this year's hardships as
well.
Asyl Osmonalieva in an IWPR-trained journalist in Kyrgyzstan.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
