Kickstarting the Kyrgyz economy

On 8 April 2010 Kyrgyzstan experienced its second revolution in five years. The corrupt regime of President Bakiev fell as citizens rebelled after government troops opened fire on protesters, killing more than 80 people and wounding 1500. The new interim government is now preparing elections.
Alexey Semyonov Baktybek Abdrisaev
12 May 2010

Once again Kyrgyzstan has a chance to develop real democracy. The United States, OSCE, and other international partners have expressed their willingness to help. The strategic interests of the United States would certainly be well served by a stable and democratic Kyrgyzstan. Unfortunately, the new government faces enormous political and economic challenges: the state coffers were plundered by the Bakiev regime (only 15 million Euro remain), and the people are especially upset about corruption surrounding the U.S. airbase "Manas", which was a source of enrichment for the ruling family. In addition, Kyrgyzstan’s neighbours imposed a blockade by closing the borders and the country is suffering economically.

As hearings at the U.S. Congress on 22 April 2010 demonstrated, the airbase is becoming an obstacle to US relations with the new regime in Kyrgyzstan. It is also a threat to the strategy of the Obama administration in Afghanistan, as one of us mentioned in testimony to the panel. The solution to this complicated problem will not be found unless the underlying issues are addressed.

First, the Kyrgyzstan government needs to acknowledge that the country’s security interests are best served by helping the United States to succeed in Afghanistan i.e., by maintaining the strategically important "Manas" base. A resurgent Taliban and affiliated fundamentalist insurgent groups would present an existential threat to Kyrgyzstan's sovereignty. (The same is true for Russia, in spite of Moscow's desire to prevent a long-term US military presence in Central Asia). The US, for its part, has to recognize the economic impact of the base in a small, poor country: it is almost guaranteed to become a vertex of corruption because so few other sources of income exist in Kyrgyzstan.

Thus, the second thing United States and the West must do is look at the roots of the poverty in Kyrgyzstan, which is related not only to corruption but also to the very radical economic reforms carried out so long ago.

Kyrgyzstan was famous as the first Central Asian country to establish a freely convertible currency and then in 1998 to become the first CIS country (including the Baltic States) to be accepted into the World Trade Organisation (WTO).  Compared to its neighbours Kyrgyzstan was, and remains, far ahead in market reforms: the United States and the West made a very significant contribution to this. But Kyrgyzstan clearly did not recognize the consequences of accelerating its admission to WTO. Its main trading partners were, and still continue to be, Russia and Kazakhstan, neither of which was a member of WTO in 1998, nor has become one since.

Kyrgyzstan’s trade with CIS countries was immediately hit by 200% tariffs, which are still in force. It was a huge setback for the Kyrgyz economy, especially for small businesses initiating exports to CIS countries. The punitive tariffs are an ongoing calamity for Kyrgyzstan, which has only got worse with the recent entry of Kazakhstan into the Customs Union led by Russia.  Kyrgyzstan’s geography and infrastructure clearly point to dependence on trade with Kazakhstan, Russia and other Central Asian countries of the former Soviet Union. The only railroad in Kyrgyzstan (entry mode for 90% of fuels) goes to Kazakhstan and then to Russia and Uzbekistan, as do roads and electric power lines. Of the bordering countries only China joined WTO (in 2001), but Kyrgyzstan and China are separated by the Tien-Shan mountain range with peaks that reach 24,000 feet and development of their joint infrastructure will require time and significant investments.

In retrospect, it is clear that Kyrgyzstan’s initial strategy of joining WTO to stimulate regional economic development based on global trade rules has not yet proved itself. Different models of economic development in other Central Asian states has meant that over the 12-year period no one has followed Kyrgyzstan, which has endured the consequences of following through radical economic reforms, but without the rewards.  It has unfortunately not developed commercial links with the United States either. Trade with USA is non-existent: in 2007 Kyrgyz exports amounted to approximately $300,000.

The "Manas" airbase has further exacerbated the situation. Russia has now the means to put pressure on Kyrgyzstan (through trade sanctions) and an incentive, albeit misguided, to do so (to assert its opposition to the US military presence in Central Asia).  Kyrgyzstan is squeezed in between and is suffocating economically.

It is time for the United States to help Kyrgyzstan establish trade and commercial links. Discussions regarding the status of the US base are certain to involve not only Kyrgyzstan but also a deal (possibly unofficial) with Russia as well. Whatever solution the US reaches, it should include some form of normalising trade relations between Kyrgyzstan and its CIS neighbours.  This will probably be based on regional development structures in Central Asia that will also benefit from the Afghanistan reconstruction. It should include new market-based institutions, for which Kyrgyzstan long ago prepared the ground.

The USA should kickstart bilateral trade with Kyrgyzstan. The legal framework is in place: Kyrgyzstan is a member of WTO, has the Generalized System of Preferences established, and in 2000 became the first CIS country to be excluded from the Jackson-Vanick amendment and receive the most favoured nation status. It is excellent that the same people in the United States who pushed for the Kyrgyz trade legislation in 1998-2000 are now ready to help with facilitating this trade. Even a negligible investment, such as several million dollars of loans to American companies importing Kyrgyz goods (among the possibilities are aluminum goods, clothing, semi-precious stones and leather goods), would have a significant positive result. Though unnoticeable in the huge US market, such trade would make a huge impact in Kyrgyzstan and would enable the new Government there to overcome the economic crisis, stabilize the country, encourage Kyrgyzstan to become a reliable democratic partner for the US and demonstrate to other nations in the region the advantages of global trade.

Baktybek Abdrisaev, Distinguished Visiting Professor of History and Political Science at Utah Valley University, was Kyrgyzstan's ambassador to the United States and Canada from 1997 to 2005 and testified before the U.S. Congress on 22 April 2010.

Alexey Semyonov is Vice President of the Andrei Sakharov Foundation, a not-for-profit organisation promoting civil society and democratic development in the former Soviet Union.

Robert Livingston was a US Congressman (R, La; 1977-99). He served as Chairman of the House Appropriations Committee (1995-99) and co-authored the bill granting normal trade status for Kyrgyzstan.

Get oDR emails Occasional updates from our team covering the post-Soviet space Sign up here


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData