Kyrgyz Republic - International University of Japan · The Kyrgyz Republic is a unitary presidential republic that declared independence from the Soviet Union in 1991. Until the late

Country Profile 2004

Kyrgyz RepublicThis Country Profile is a reference work, analysing thecountry's history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit's Country Reports analyse current trends and provide atwo-year forecast.

The full publishing schedule for Country Profiles is nowavailable on our website at http://www.eiu.com/schedule

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For over 50 years it has been a source of information on businessdevelopments, economic and political trends, government regulations and corporate practice worldwide.

The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where itslatest analysis is updated daily; through printed subscription products ranging from newsletters to annualreference works; through research reports; and by organising seminars and presentations. The firm is amember of The Economist Group.

LondonThe Economist Intelligence Unit15 Regent StLondonSW1Y 4LRUnited KingdomTel: (44.20) 7830 1007Fax: (44.20) 7830 1023E-mail: [email protected]

New YorkThe Economist Intelligence UnitThe Economist Building111 West 57th StreetNew YorkNY 10019, USTel: (1.212) 554 0600Fax: (1.212) 586 0248E-mail: [email protected]

Hong KongThe Economist Intelligence Unit60/F, Central Plaza18 Harbour RoadWanchaiHong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]

Website: www.eiu.com

Electronic deliveryThis publication can be viewed by subscribing online at www.store.eiu.com

Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databasesand as direct feeds to corporate intranets. For further information, please contact your nearest EconomistIntelligence Unit office

Copyright© 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication norany part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical, photocopying, recording or otherwise, without the prior permissionof The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author's and the publisher's ability. However, theEconomist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.

ISSN 1741-0029

Symbols for tables"n/a" means not available; "�" means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

Country Profile 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004

Kyrgyz Republic 1

© The Economist Intelligence Unit Limited 2004 www.eiu.com Country Profile 2004

Contents

Kyrgyz Republic

3 Basic data

4 Politics4 Political background5 Recent political developments9 Constitution, institutions and administration11 Political forces14 International relations and defence

16 Resources and infrastructure16 Population17 Education18 Health19 Natural resources and the environment19 Transport, communications and the Internet20 Energy provision

22 The economy22 Economic structure23 Economic policy26 Economic performance27 Regional trends

28 Economic sectors28 Agriculture29 Mining and semi-processing31 Manufacturing32 Construction32 Financial services33 Other services

33 The external sector33 Trade in goods35 Invisibles and the current account36 Capital flows and foreign debt37 Foreign reserves and the exchange rate

38 Regional overview38 Membership of organisations

42 Appendices42 Sources of information43 Reference tables43 Population43 Employment by sector44 Consolidated government operations44 Money supply

2 Kyrgyz Republic


44 Interest rates45 Gross domestic product45 Gross domestic product by expenditure45 Gross domestic product by sector45 Prices and earnings46 Agricultural production46 Animal husbandry46 Livestock production47 Exports of goods fob47 Exports of goods fob48 Imports of goods cif48 Imports of goods cif48 Destination of exports49 Origin of imports49 Balance of payments, IMF series50 Balance of payments, national series50 External debt, World Bank series51 Foreign reserves51 Exchange rates

Kyrgyz Republic 3


Kyrgyz Republic

Basic data

198,500 sq km

4.984m (end-2002 official estimate)

Population in !000 (end-2002 estimates)

Bishkek (capital) 825 Osh 226

Continental high mountain

Kyrgyz and Russian are the official languages

Metric system

The som was introduced on May 10th 1993. The average exchange rate in 2003was Som43.65US$1; the official rate on May 31st 2004 was Som43.94:US$1

5 hours ahead of GMT

Calendar year

January 1st (New Year!s Day), January 7th (Orthodox Christmas); February 23rd(Eid al-Adha); March 8th (International Women!s Day); March 21st (Noruz); May1st (Labour Day); May 5th (Constitution Day); May 9th (Victory Day); August31st (Independence Day)

Total area

Population

Main towns

Climate

Languages

Weights and measures

Currency

Time

Fiscal year

Public holidays

4 Kyrgyz Republic


Politics

The Kyrgyz Republic is a unitary presidential republic that declaredindependence from the Soviet Union in 1991. Until the late 1990s it was the leastauthoritarian of the five former Soviet republics in Central Asia, but over thepast six years the president, Askar Akayev, has shown increasing impatiencewith democratic procedures. Mr Akayev was elected to the presidency byparliament in October 1990, and was then elected unopposed in a nationalballot on October 13th 1991. He was re-elected in December 1995 and again inOctober 2000. Over the course of 2002 the opposition made repeated calls forhis resignation, which led Mr Akayev to test his popularity, and in February2003 a referendum endorsed constitutional amendments to strengthen thepresidency, and gave public support for Mr Akayev to see out his full term inoffice, which runs until late 2005. Mr Akayev has stated that he will retire frompolitics following the end of his term.

Political background

Like the Mongols and the Kazakhs, the Kyrgyz lived a nomadic, pastoral life-style before Soviet rule. Russian colonisation created urban centres such as thecapital, Frunze (now known as Bishkek), and some settled agricultural zones inthe north, in which a high percentage of Russian and other non-Kyrgyzinhabitants still live. The Kyrgyz way of life was largely untouched until Sovietrule, when the nomads were forcibly collectivised. Isolated by high mountainsand divided by tribal loyalties, Kyrgyz communities had little sense of aunifying national identity until Soviet administrators created an autonomousKyrgyz region in 1924. Russians dominated the Communist Party of the KyrgyzSoviet Socialist Republic until the late 1950s; ethnic Kyrgyz made up only asmall proportion of the party elite. With the advance of industrial developmentin the 1930s-50s, an influx of Russians accompanied this political domination.

During Leonid Brezhnev!s rule (1962-82) an ethnic Kyrgyz elite was allowed totake over government of the republic in exchange for absolute loyalty toMoscow. Local patronage fostered a pattern of political relationships that stillpersists in the post-communist environment. As Mikhail Gorbachev!s perestroika(restructuring) reform process intensified, the Kyrgyz Communist Party began tolose control of a wide range of emerging informal movements with a broadsocial and political agenda. The Kyrgyz Communist Party!s inability to cope withethnic violence in the southern city of Osh in June 1990 further weakened itshold on power. At least 200 people died in violence that highlighted tensionsbetween the Uzbeks, traditionally the largest ethnic group in Osh, and theKyrgyz, formerly rural dwellers who had been steadily migrating into the city.Osh lies at the head of the densely populated Ferghana valley, most of which issituated within Uzbekistan. The Kyrgyz authorities continue to fear possibleterritorial claims by the Uzbek government on southern parts of the KyrgyzRepublic, or at least manipulation of the ethnic Uzbek population as a way ofgaining political leverage.

Soviet rule brought a settledway of life

Violence increased towardsthe end of the Soviet Union

Kyrgyz Republic 5


Recent political developments

The Kyrgyz parliament, the Supreme Soviet, sought to contain the mountingtension by choosing a new president in October 1990: this was Askar Akayev, aphysicist who had not held high office in the Communist Party and had limitedpolitical experience. A nationwide ballot confirmed his position in October1991, after he denounced the August 1991 coup attempt in Moscow againstMr Gorbachev. With the break-up of the Soviet Union, the Kyrgyz Republicjoined the new Commonwealth of Independent States (CIS) in December 1991.

Once in office, Mr Akayev allowed considerable political liberalisation,encouraging the emergence of an embryonic civil society and permitting thedevelopment of a more open press. He sought to satisfy some of the demandsof the Kyrgyz nationalists"setting aside some privatised farmland for ethnicKyrgyz"while restricting their more extremist elements. Mr Akayev wasconcerned by the rising exodus of Russians and other non-indigenous groups,whose departure affected the industrial sector and other areas employingskilled and professional workers. He thus took a number of steps to encouragethem to stay. Although in late 2001 the constitutional court turned down aproposal to allow dual citizenship with Russia, the Russian language wasmade an official language of the republic in 2001.

When a combination of parliamentary hostility to Mr Akayev!s reforms andrepeated allegations of high-level corruption led to confrontations between thepresidency and the parliament, Mr Akayev responded by circumventing thelegislature. He held referendums in 1994 to turn the parliament into a bicameralassembly, confirm public support for his policies and boost his powers.Parliament foiled one proposed referendum, which would have extended histerm in office until 2001, and forced Mr Akayev into an early presidential pollin December 1995"which he won. Parliamentary and presidential elections in2000 further strengthened Mr Akayev!s position, with the banning of severalopposition groups and the imprisonment of his main challenger for thepresidency, Feliks Kulov.

Increasing signs of Mr Akayev!s authoritarianism fuelled opposition protests,culminating in the killing of several protesters by government troops in thesouthern town of Ak-Suu in March 2002. The opposition appearedstrengthened by the events, and, over the remainder of the year, made repeatedcalls for Mr Akayev!s resignation. In response, Mr Akayev held anotherreferendum in February 2003. The population voted on two questions: whethera new package of constitutional amendments should be adopted, and whetherthe president should serve out the remainder of his term, set to end in 2005.Official results showed over 76% in favour of the amendments, and nearly 79%in favour of Mr Akayev!s serving out his term. Turnout was said to be 87% ofthe registered electorate.

The official results were disputed on a number of fronts, and several non-governmental organisations (NGOs), including the International HelsinkiFederation for Human Rights, argued that the authorities had committednumerous transgressions during the referendum. Despite this, and even though

Mr Akayev ushers in stabilityand a measure of reform

Mr Akayev graduallystrengthens his position

February 2003 referendumseals Mr Akayev's tenure

6 Kyrgyz Republic


participation was no doubt lower than the government claimed, Mr Akayev islikely to have had the support of a majority of those who cast a vote.Independent surveys carried out in January in the Kyrgyz Republic!s mainurban centres"Bishkek, the capital, and Osh, in the south"showed that some66% of respondents supported the referendum proposals.

Civil unrest escalates in 2002

Several events elicit protest

The origin of the March 2002 events that led to the resignation of the governmentlies in the arrest of Azimbek Beknazarov, a parliamentary deputy and vocal critic of a1999 agreement to cede Kyrgyz territory to China. Opposition critics claimed thatMr Beknazarov, who was officially charged with abuse of power in the mid-1990s,was being punished for his political position. As his trial began in March 2002, thefirst signs of public protest emerged in the southern part of the country, and onMarch 17th several thousand demonstrators in the Ak-Suu district were met byarmed troops who opened fire, killing several protesters. In the immediate aftermathof the shootings the government blamed opposition leaders for stirring up trouble,although Mr Beknazarov was immediately freed. Despite government denials, thesubsequent state investigation of the Ak-Suu events suggested that excess force hadbeen used to quell the demonstration. Public protest in the two months followingthe events became more persistent, as for the first time individual opposition figuressucceeded in garnering a degree of public support. In Bishkek the parliamentbuilding was picketed by several hundred protesters, and in mid-May severalthousand demonstrators blocked the Osh-Bishkek highway to protest at the ceding ofterritory to China. Despite this, the president, Askar Akayev, acquired parliamentaryapproval for the deal with China, claiming that the government had not given awayas much territory as China wanted.Although the security agencies continued to arrest protesters and human rightsactivists, at a meeting of the Security Council on May 22nd the prime minister,Kurmanbek Bakiyev, tendered his resignation, forcing the rest of his government tofollow suit. The head of the presidential administration, Amanbek Karypkulov, camein for particular criticism for not authorising meetings with the demonstrators aheadof the police action, although Mr Akayev argued that the interior minister, TemirbekAkmataliyev, could not be blamed as he had only just taken up his position. Anethnic Russian and first deputy prime minister in the outgoing government,Nikolai Tanayev was appointed the new prime minister in late May.

Despite the seemingly ringing endorsement of his rule, the oppositioncontinued to call for Mr Akayev!s resignation. However, the authorities won asignificant battle in June 2003 with the closure of Moya Stolitsa (My Capital), anindependent newspaper that was sued by the prime minister, Nikolai Tanayev,for defamation of character. During its two years of existence, the paper hadpublished many articles alleging corruption and money-laundering amongKyrgyz officials, and had been suspended on many previous occasions. Withfines against it amounting to a total of Som4m (US$96,131), the newspaper wasunable to meet its legal costs.

The opposition then suffered another blow, on June 26th, when parliamentgranted Mr Akayev, as well as Absamat Masaliyev and Turdakun Usubaliyev"

Opposition suffers furthersetbacks after referendum

Kyrgyz Republic 7


two other former first secretaries of the Kyrgyz Communist Party, who are nowparliamentarians"lifelong immunity from prosecution for actions taken duringtheir terms in office. This measure had been one of the proposals put forwardin the February referendum. Mr Akayev, as first president of the independentKyrgyz Republic, will receive 80% of his salary after leaving office, keep hisgovernment houses in Bishkek and on Lake Issyk-Kul, in the north of thecountry, and retain an official car and driver. Any members of his family thatlive with him will also receive an allowance from the state. Similar privilegeswere granted to the other two former first secretaries. All of them will also beexempted from legal costs in any libel suits.

Despite these provisions made for his eventual retirement from politics,concern has mounted that Mr Akayev intends to stand for the presidency athird consecutive time. Committees of the upper and lower houses ofparliament have made conflicting statements as to the legality of such a move.A government reshuffle in February 2004, which brought in severalexperienced and loyal officials to key posts, and the expansion of thepresidential administration!s press service, were taken as further indicationsthat Mr Akayev was strengthening his position in preparation for the nextelections. The parliamentary election will take place in February 2005 and thepresidential election in October 2005.

A peaceful regime change in Georgia in November 2003, and the opposition!ssuccess in gaining a parliamentary majority there, has galvanised oppositionforces in the Kyrgyz Republic into election campaigning and pooling theirresources through party mergers and the formation of election blocs.However, the government adopted a new Election Code in December, whichrestricts the start of official election campaigning to just 35 days before thepresidential poll and 25 days before the parliamentary poll, which will allowscant time for candidates to campaign effectively. Signs that the authoritiesintend to crack down on the opposition in advance of the elections becameapparent in January 2004, when listening devices were found in theparliamentary offices of deputies belonging to the radical Movement for theResignation of Akayev and Reforms for the People. Intimidation andharassment of senior members of the Ar-Namys party, reported in June,followed renewed domestic and international agitation by supporters of theparty!s leader, Mr Kulov, for his release.

Important recent events

August-November 1999

Islamist insurgents seize Kyrgyz and Japanese hostages in the Batken area. A newBatken region is subsequently created.

February 2000

A controversial election results in a more compliant legislature and undermines theleading potential challenger for the presidency, Feliks Kulov, who is imprisoned.

October 2000

Askar Akayev is re-elected president, with around 75% of the vote.

President and oppositionprepare for 2005 elections

8 Kyrgyz Republic


January 2001

Mr Kulov is sentenced to seven years in prison for abuse of his official position.

January 2002

US armed forces open an air base at Bishkek!s Manas airport to provide support fortheir military operations in Afghanistan. The arrest of a parliamentary deputy,Azimbek Beknazarov, provokes hunger strikes and small demonstrations byopposition supporters.

March 2002

A demonstration held in the south of the country to protest at the arrest ofMr Beknazarov ends in violence when several protesters are killed by police.

March-May 2002

Ongoing demonstrations force the resignation of the government led by KurmanbekBakiyev (prime minister since December 2000). Nikolai Tanayev is subsequentlyappointed prime minister.

May 2002

Mr Beknazarov is found guilty of abuse of power, given a suspended sentence andstripped of his parliamentary mandate.

February 2003

A referendum strengthens the powers of the presidency and endorses the tenure ofMr Akayev, despite opposition calls for his resignation.

June 2003

Parliament grants Mr Akayev and his family extensive privileges"most notably,lifelong immunity from prosecution.

August 2003

Mr Kulov!s appeal against his conviction is dismissed by the Supreme Court.

October 2003

The Russian-staffed military airbase of the Collective Security Treaty Organisation(CSTO) of the Commonwealth of Independent States (CIS) at Kant, set up inNovember 2002 to combat regional terrorism, is given permanent status in theKyrgyz Republic.

November 2003

Four religious organisations are banned as potential security threats"Hizb ut-Tahrir,the Islamic Party of Turkestan, the East Turkestan Liberation Organisation and theEast Turkestan Islamic Party.

January 2004

The Election Law is amended ahead of parliamentary election in February 2005 andthe presidential election in October 2005.

April-May 2004

Two motions of no confidence in Mr Tanayev tabled by the Legislative Assembly fail.

Kyrgyz Republic 9


Constitution, institutions and administration

The Kyrgyz Republic adopted its first post-Soviet constitution on May 5th 1993.Although the initial draft provided for a relatively fair distribution of powerbetween president, government and parliament, repeated amendments byMr Akayev have gradually increased his powers at the expense of parliament.In 1994, in an attempt to create a more loyal and pro-reform parliament, hereplaced the 313-seat unicameral chamber with a 105-seat bicameral legislature,the Jogorku Kenesh. Following another referendum in early 1996, Mr Akayev!spowers were expanded further, although this did not by itself ensure that hispolicies were implemented throughout the country.

In 1998 Mr Akayev was able to circumvent the apparent constitutionalprohibition against his standing for a third term as president, when theConstitutional Court ruled that he had served only one term under the existingconstitution. Following his court victory, Mr Akayev set in train further con-stitutional changes aimed at weakening the elected parliamentary oppositionthat had often delayed legislation desired by the president. The changes wereapproved in a nationwide referendum in October 1998, in which voters wereasked to approve or reject in its entirety a package of unrelated proposals.These included private land ownership, a reduction in the immunity ofdeputies and greater guarantees for press freedom. Although at the time theonly formal limitation of deputies! rights related to their ability to block thegovernment!s budget proposals, it was suspected that, in combination with afresh election scheduled for 2000, the proposals would serve to constrainparliamentary criticism of the administration.

The referendum strategy was used again in February 2003, in response to aperiod of increasing political unrest. Since the March 2002 Ak-Suu riots, inwhich protesters were killed by Kyrgyz security forces, the president had beenbesieged by increasing political opposition and public outrage that thoseresponsible for authorising the use of force against the demonstrators had notbeen brought to justice. Opposition leaders had also been highly critical ofMr Akayev!s decision to put a series of recommendations for political reformmade by the Constitutional Council"a body comprising representatives from abroad spectrum of political parties and parliamentary factions"to a 17-memberpanel of "legal experts", selected by Mr Akayev himself, for review. Despite re-assurances from the government that the expert panel would make only minoramendments to the Constitutional Council!s proposals, several major changeswere made. These included the abolition of party-list voting in parliamentaryelections in favour of a first-past-the-post system, and an amendment grantinglegal immunity to former presidents"which includes Mr Akayev"their familiesand their assets.

The amended constitution"which came into force in February 2003"is toMr Akayev!s advantage in several ways. As well as the immunity clauses, theamendments make it more difficult to remove a president from power beforehis term has expired: a four-fifths majority of parliament is now required,instead of one of two-thirds. Also, ambiguities existing within theconstitutional amendments may allow the president legally to stand for a third

Mr Akayev has increased hispowers since 1991

Constitution is weighted infavour of the presidency

10 Kyrgyz Republic


term in office. Although the president may serve for two consecutive termsunder the new constitution, it is disputed whether Mr Akayev!s current termcould be considered his first under the new amended constitution of February2003. The concentration of judicial power in the Supreme Court is also ofconcern, especially if Mr Akayev strengthens the executive!s control over thejudiciary. Furthermore, the constitutional changes considerably weaken thepowers of parliament. The number of parliamentary committees has beenlimited to seven (previously there were 25, and in the past they have played animportant part in the legislative process), and no deputy is permitted to serveon more than one. In addition, several changes and rewordings in the newconstitution extend the president!s ability to intervene in the workings of thelegislative branch.

Changes to the election law were made in January 2004 in preparation for theparliamentary and presidential elections to be held in February and October2005, in response to intense criticism from the Organisation for Security andCo-operation in Europe (OSCE) and other international bodies over allegedvote-rigging by the Kyrgyz administration in the 2000 parliamentary andpresidential elections and the May 2003 parliamentary by-elections. Theamendments provide for greater transparency by giving observers andparticipants full access to electoral documents; excluding members of the stateadministration from serving on district election commissions and reducing theproportion of civil and municipal servants on such commissions to one-third;and preventing the removal of ballot boxes"now to be made of transparentmaterials"to other locations for vote counting. However, an additional changeto the election law that bans those with a criminal record from standing for thepresidency, and the preservation of a Kyrgyz language test for presidentialcandidates, are measures designed to prevent the possibility of Mr Kulov"who,despite his imprisonment, remains a challenger to Mr Akayev"from contendingthe presidency in future. Furthermore, the election law now disadvantages theopposition by limiting the start time for official election campaigning to 35 daysbefore the presidential election and 25 days before the parliamentary election.

The judiciary is nominally independent but suffers from a lack of reform, lowsalaries and corruption. The president recommends appointments to theconstitutional court, the supreme court and the supreme court of arbitration.An attempt made by the leadership in 2003 to bring in legislation allowing thepresident to organise and dissolve courts at the district level, in contravention ofthe constitution, did not succeed. Criminal trials involving opposition membersand journalists in recent years have revealed the administration!s strongpolitical influence over the system.

This interpretation that the law is subordinate to political considerationsappeared to be supported by the trial of one of the main opposition leaders,Mr Kulov, and other opposition figures in early 2001, as well as by the amnestygranted to Topchubek Turgunaliyev in August. Originally sentenced to ten yearsfor conspiring to assassinate the president, Mr Turgunaliyev!s sentence wasreduced to six years and then commuted, following criticism by a represen-tative of the UN secretary-general. The same might be said about the case of

Judiciary acts as instrument ofthe state

Election Law does not providefor equal opportunity

Kyrgyz Republic 11


Azimbek Beknazarov, a parliamentary deputy who was arrested in January2002. When opposition figures called for his release, the authorities argued thatthey could not interfere with the judicial process, but quickly did so followingthe shooting of several protesters in March.

Political forces

A number of political parties emerged in the early 1990s, including Kyrgyznationalists, moderate social democrats, to compete with the Communist Party.However, their importance has gradually diminished, in part as a result ofconstitutional changes that have increased the president!s powers at theexpense of parliament, but also because few had real roots in the wider society.The Communist Party, which gained 28% of the vote in the 2000 parliamentaryelection, has proved hostile to radical economic reform, but has supported thegovernment on ethnic equality and on encouraging Russians to stay in theKyrgyz Republic. Some Kyrgyz nationalists have sought positive discriminationto reduce what they regard as a Russian colonialist legacy, but they have fewcoherent economic policies. In early 2002 opposition parties made severalattempts to create a broad-based movement, but these were little moresuccessful than previous efforts.

Constitutional amendments passed in 2003 will also damage oppositionparties and other opponents of the government. The abolition of party-listvoting in favour of first-past-the-post contests at district level will make it harderfor political parties to gain seats in parliament, and will probably produce moredeputies who are beholden to the government for their positions. Despite themuch-heralded attention in the new document to the protection of humanrights, the ambiguous wording of some of the articles of the constitution leavesroom for the authorities to ban protests, declare social organisations illegal, and,in certain cases, to overrule civil rights.

However, the example of peaceful regime change in Georgia in November2003, in which the incumbent president was ousted and opposition forceswon a majority in parliament, as well as the anticipation of elections in theKyrgyz Republic in 2005, stimulated agitation by Kyrgyz opposition forces inearly 2004 and led to a wave of party mergers and tactical election blocs.Through larger political formations that encompass diverse policies andinterests, the opposition hope to broaden their appeal to the electorate andincrease their chances of gaining seats in the legislative assembly in theFebruary 2005 parliamentary election. The same tactic is being employed bypro-government parties.

After a positive start in the early 1990s, the democratic credentials of thepresident, Akar Akayev, have slipped. Journalists who attack him or hisassociates have regularly found themselves facing criminal charges. Althoughthe Kyrgyz Republic retains the most open political system in Central Asia, theslide away from democratic reforms reached a nadir during the 2000 parlia-mentary and presidential elections. The Kyrgyz authorities banned severalopposition groups and incarcerated Mr Kulov on criminal charges dating back

Importance of political partiesdiminishes

President's enthusiasm fordemocracy wanes

Coalitions feature in 2004

12 Kyrgyz Republic


to his time as head of state security in the mid-1990s. Domestic andinternational election observers (including the Organisation for Security andCo-operation in Europe"OSCE) were highly critical of the conduct of theseelections, and of the presidential election held in October 2000, in particularthe steps taken to remove serious contenders from the ballot paper. Althoughmany commentators believe that Mr Akayev would have won a free contest,his share of the vote, at 75%, probably exaggerated the extent of his support.Moreover, since that election, and despite occasional promises to deal withabuses, the president has presided over persistent official harassment ofindependent-minded critics"as illustrated by the closure in June 2003 of thehighly critical newspaper Moya Stolitsa (My Capital) and the arrest on dubiouscharges in May and July 2003 of two outspoken members of the Ar-Namysleadership, Tynchtykbek Dulatov and Emil Aliyev.

The ethnic Russians in the Kyrgyz Republic have not formed aggressivelynationalist groups. Nonetheless, increasing unease about conditions in thecountry led to a renewed wave of Russian emigration in the late 1990s, withthe result that the Russian language was given equal status to Kyrgyz inDecember 2001, in an attempt to reverse this trend. However, the adoption of acontroversial Law on the State Language in April 2004, which promotes thestatus of the Kyrgyz language and its use in the mass media, universityentrance exams and by officials working in state and local self-governmentbodies, could provoke an upsurge of emigration by ethnic Russians and othernon-Kyrgyz citizens.

Islamic militancy tends to be found in the south of the country, notably Oshand Jalalabad. In the past few years several hundred members of an Islamicgroup, Hizb ut-Tahrir (Party of Freedom), have been convicted of fomentinginter-ethnic unrest, although this group has no record of violence and is mainlyconcerned with the propagation of the idea of an Islamic state. Hizb ut-Tahrircells have been found in Bishkek and other areas where Islam has traditionallybeen much weaker. Indeed, as the presidents of Central Asia have becomeincreasingly authoritarian and repressive, the popularity of Hizb ut-Tahrir hasgrown concomitantly. Because all other avenues of criticism and oppositionhave been closed, the secretive movement has become one of the fewremaining outlets for any kind of dissent, despite being outlawed sinceNovember 2003. Recently, Hizb ut-Tahrir has turned its attention to thedissemination of anti-government propaganda, which has caused the Kyrgyzauthorities greater concern.

Mr Akayev has proved partly successful in managing the regions bymaintaining direct presidential control over provincial governors and shufflingposts in the central government. The incursion of a group of Islamic militantsinto the western part of Osh province in 1999 was exploited by the influentiallocal clan to accelerate the creation of a new province in the region, Batken.Since then the region has benefited from an inflow of money to improvesecurity and amenities. The US-led military operations in Afghanistan in late2001 and early 2002 appear to have undermined for the time being theactivities of the Islamic Movement of Uzbekistan (IMU), who were responsible

Nationalist tensions areunder control

Islamic radicals continue toattract followers

Regional tensions persist

Kyrgyz Republic 13


for the incursions in 1999 and further attacks in 2000, and there have been noencroachments onto Kyrgyz territory since then.

Nonetheless, tensions remain, as the southern provinces are economicallyweak and continuing land shortages and the high level of unemployment haveprovoked localised conflict that at times has had an ethnic flavour. In addition,the perceived exclusion by southerners from political processes (the majority ofpoliticians in power represent northern regions and clans) has provokedagitation by some political elements there for autonomous government, whichthe regime has countered by enhancing the status and budget of the principalcity, Osh, and the municipal government.

Main political figures

Askar Akayev

President since 1990, Mr Akayev wields the overwhelming executive power in theKyrgyz Republic. Although his emasculation of the parliament and other oppositionsince 1998 has coincided with a weakening of his popularity, he still succeeded inwinning the October 2000 presidential election. In the past he received solidinternational support as a relatively liberal ruler by comparison with his CentralAsian counterparts, but his increasing willingness to disregard established democraticnorms (particularly in dealing with the opposition and ensuring fair elections) hasattracted mounting international criticism. Mr Akayev has pledged to retire when hiscurrent term in office expires in October 2005.

Nikolai Tanayev

Mr Tanayev, an ethnic Russian, became prime minister in May 2002 upon theresignation of his predecessor, Kurmanbek Bakiyev, over the Ak-Suu riots.Mr Tanayev had been first deputy prime minister in Mr Bakiyev!s government, andpresided over the investigative commission that found senior officials responsible forthe civilian deaths in Ak-Suu and thus led to the government!s resignation. Inaddition, Mr Tanayev!s lawsuit against the highly critical newspaper Moya Stolitsa(My Capital) proved the final death knell for the publication. These events suggestthat Mr Tanayev is an able political strategist, and one who Mr Akayev perhapsrequires in the run-up to the parliamentary and presidential elections in 2005.

Feliks Kulov

A former head of the National Security Service (NSS) and one-time mayor of theKyrgyz capital, Bishkek, Mr Kulov appears to have substantial popular support and apositive international reputation. He would have been Mr Akayev!s most high-profilerival for the presidency in October 2000, had he not been disqualified fromstanding. However, his reformist rhetoric belies his KGB past and is not a reliableindicator of his commitment to deepening Kyrgyz democracy. Mr Kulov was sackedfrom his NSS post in 1998 by Mr Akayev, resigned as mayor of Bishkek in 1999(claiming undue interference by Mr Akayev) and imprisoned in February 2000 ondubious charges. Released soon afterwards, he was still prevented from contestingthe October election, and in January 2001 was sentenced to seven years!imprisonment for abuse of power in earlier positions. An additional sentence of tenyears, to be served concurrently, was handed down to him in May 2002, followinghis conviction on embezzlement charges.

14 Kyrgyz Republic


Misir Ashirkulov

Mr Ashirkulov was until May 2004 Secretary of the Security Council, but wasdismissed by Mr Akayev when he announced his decision to chair a newly formedopposition grouping. He is second to the president in influence and a likelycontender for the presidency, although there are ambiguities as to where his loyaltiesreally lie. A student friend and scientific colleague of the president, Mr Ashirkulovlater became deputy to Mr Kulov when the latter headed the NSS and subsequentlyreplaced him. An attempt on his life in September 2002 is thought to have beenorganised by hardliners in the political elite who opposed his conciliatory stance tothe opposition in the wake of the Ak-Suu tragedy.

Omurbek Tekebayev

A moderate nationalist active in Kyrgyz politics since independence, Mr Tekebayevhas some support in the south of the country, and ran second to Mr Akayev in thepresidential election in October 2000, winning 13% of the vote.

Azimbek Beknazarov

A parliamentary deputy, Mr Beknazarov gained a high profile in 2001 as a result ofhis criticism of the Kyrgyz government!s resolution of territorial claims withKazakhstan and China, which he claimed gave away land unnecessarily. His arrest inJanuary 2002, and the subsequent anti-government demonstrations, raised hisprofile further, and he has remained a prominent critic of the government.

Kurmanbek Bakiyev

Mr Bakiyev resigned as prime minister in May 2002 in the aftermath of the Ak-Suushootings but has remained a deputy in the Legislative Assembly and co-chairs acentrist faction. He has gained the backing of an opposition electoral bloc puthimself forward as a contender in the 2005 presidential elections.

International relations and defence

There have been no incursions by armed groups onto Kyrgyz territory since theyear 2000, although explosions in Uzbekistan in March 2004 thought to beperpetrated by Islamic radicals led to heightened security within the KyrgyzRepublic and along the frontier with Uzbekistan. Several armed attacks thattook place in public places and against well-known political figures in 2001-03in Bishkek have been motivated by internal political concerns or economicrivalry. Mr Akayev has fostered a "multi-vectoral" foreign policy to ensure thecontinued and balanced participation of the large powers"Russia, China andthe US"in defence and economic security. The Kyrgyz Republic is also amember of several regional groupings aimed at broadening co-operation insecurity and economic issues, including the Shanghai Co-operationOrganisation (SCO), the Collective Security Treaty (CST) of the Commonwealthof Independent States (CIS)"a grouping transformed in April 2002 into theCollective Security Treaty Organisation (CSTO)"and the Eurasian EconomicCommunity. However, these have largely proved less effective at enhancingregional economic co-operation, and foreign policy has therefore tended to beconducted primarily along bilateral lines.

Risk of terrorist incursions hassubsided

Kyrgyz Republic 15


Relations with Russia are particularly sensitive, given the small size of theKyrgyz Republic and its Soviet past. Because the Soviet leadership had gearedthe Kyrgyz Republic!s economic structure towards meeting the needs ofindustrial centres elsewhere in the Soviet Union, the country has remainedheavily dependent on Russia since independence. This has often inclined MrAkayev to bow to Russian pressure, whether over economic issues or theposition of the Russian minority in his own country. Close co-operation withRussia has been of particular importance in recent years, given the continuedUS military presence in the Kyrgyz Republic and the apparent regional terroristthreat. The decision to permit US military forces onto Kyrgyz territory wasbalanced by an agreement signed with Russia in December 2002 allowingRussian forces to establish a base at Kant, some 20 km from the capital, Bishkek;the granting of a long-term lease to Western forces at Ganci in July 2003 wasfollowed by an agreement allowing Russia to reinforce its airbase.

Since the events of September 11th 2001 the Kyrgyz Republic has been drawninto supporting the US-led "war on terror". Kyrgyz air space was opened tocoalition aircraft in late September 2002, and in December the parliament votedto permit the US to base military aircraft and personnel on Kyrgyz territory. Insubsequent months this invitation was extended to forces from other countriesinvolved in military and humanitarian operations in Afghanistan. Amongparliamentary deputies and some of the population there was some criticismof the bombing of Afghanistan and subsequent military operations in Iraq, andresistance to the idea of a long-term US presence in the Kyrgyz Republic. Somealso expressed concern as to how such developments would be viewed inRussia. Mr Akayev has continued to support the international coalition as aresult of continued instability in the wider region and an expansion in drugtrafficking from Afghanistan. Whereas the Kyrgyz Republic!s relations withRussia developed to the level of "strategic ally" in 2003, perceived USinterference in Kyrgyz domestic politics has been poorly received by Mr Akayev.

The Kyrgyz government has also had to be flexible in its relations withUzbekistan"a large neighbour that has been eager to assert itself as a regionalpower. As a result, the Kyrgyz Republic has needed to take a more hardlinestance against Islamic fundamentalism, in order to limit Uzbekistan!s propensityfor unilateral action against alleged militant Islamic groups stationed outside itsborders. However, the continuation of unauthorised crossings into Kyrgyzterritory by Uzbek security services in 2004 has caused friction in bilateralrelations. Other sources of tension have emerged since 2000"the decision byUzbekistan to erect fences and minefields in the border areas has led to thedeath or injury of several Kyrgyz citizens, and the Uzbek government hasrefused to clear the mines or provide maps showing their locations.Disagreements over the shared use of water resources and ownership of energydeposits in border areas have also persisted.

Relations with China have improved steadily since independence. The twocountries have settled their border demarcation disputes and signed economicco-operation agreements that have led to a marked increase in trade. TheKyrgyz Republic hosts at least 40,000 ethnic Uighurs, many of them emigrants

China has become a newtrading partner

Tensions are exacerbated inrelations with Uzbekistan

US retains presence in theKyrgyz Republic

Russia remains the mainoutside influence

16 Kyrgyz Republic


from China!s Xinjiang region, who remain virulently opposed to China!s rule inXinjiang. China regularly entertains Kyrgyz ministers, partly to strengtheneconomic ties, but mainly to ensure that the Kyrgyz government continues tomonitor and suppress Uighur separatist activity, which China claims is stillconducted from bases in the Kyrgyz mountains. Relations were complicated in2001 by the reaction of some Kyrgyz parliamentarians to bilateral agreementson border delimitation, which they claim deprived the Kyrgyz Republic ofpastoral land. It was also argued that by signing away land without reference toparliament, Mr Akayev was in breach of the constitution. Nevertheless, theagreement was ratified by parliament in May 2002.

The Kyrgyz Republic has one motorised rifle division, two brigades of mountaintroops, an air defence brigade, and smaller tank and artillery units. The Islamicmilitant insurgencies into the south of the country in 1999 and 2000 exposedthe poor state of readiness of these troops. Since then the government hasreportedly boosted defence expenditure by almost 50% in nominal terms, andhas concluded security agreements with China on the guarding of border areas.However, Kyrgyz forces would remain heavily dependent on Russian or Uzbekmilitary support to counter another such insurgency. Mr Akayev has embracedNATO!s Partnership for Peace (PfP) programme, but this has more political thanmilitary significance.

Defence forces, 2003Total active armed forces 10,900Army 8,500Air force 2,400Paramilitary 5,000

Reserve forces 57,000

Source: International Institute for Strategic Studies, The Military Balance, 2003/04.

Resources and infrastructure

Population

The population of the Kyrgyz Republic was estimated at 5.037m at the end of2003. Population growth of just under 2% in 1990 gave way briefly to popu-lation decline in the early post-independence years as a result of emigration byethnic Russians and Germans, which a government survey estimates hadexceeded 500,000 by 1995. Partly as a result of reassurances from the president,Askar Akayev, and partly because many of those in a position to leave hadalready done so, the outflow began to decline in 1995, with the populationexpanding by an annual average of 1.2% since then. Since 1999 emigration byethnic Russians has fluctuated around 15,000 per year. Most sources attributethis continued emigration of ethnic Russians to the ongoing decline in livingstandards, concerns about the stability of the region and the perception thatthere are few prospects for Russian-speakers in the country. About two-thirds ofthe population are rural, and, with the emigration of predominantly urbanRussians, the balance is shifting further away from the towns.

Ethnic Russians continueto leave

Kyrgyz troops are in a poorstate of readiness

Kyrgyz Republic 17


Population, 2003(% of total)

Urban 34.9Rural 65.1By age0-14 years 32.315-64 years 61.665+ years 6.1

Source: Kyrgyz National Statistical Committee; CIA website.

Although official unemployment data provide a useful indicator of employ-ment trends"including the increasing role of the agricultural sector in providingemployment and the slow progress of industrial sector restructuring"they areunlikely to present an accurate picture of the employment situation. There islittle incentive for the unemployed to register with employment offices, asfewer than 10% of those who are registered receive benefits. Official estimatesthat include unregistered workers put unemployment at 12% of the workforcein 2002. However, annual surveys cited by multilateral agencies suggest thatactual unemployment might be as high as 20% of the workforce.

Population trends(% of total unless otherwise indicated)

1996 2001Total population (year-end; m) 4.7 4.9Natural population growth ('000 people) 73.4 65.5Migration outflow ('000 people) -11.7 -26.6

Rural population 64.9 65.1Urban population 35.1 34.9

Kyrgyz 60.8 66.3Russians 15.3 11.2Uzbeks 14.3 14.0Ukrainians 1.5 0.8Tatars 1.2 0.9Dungans 1.0 1.1Uighurs 0.9 1.0Turks 0.6 0.7Koreans 0.4 0.4Germans 0.4 0.3

Source: UN, Kyrgyzstan National Human Development Report, 2003.

Education

The law requires nine years of compulsory education. School instruction ismainly in Kyrgyz, whereas Russian remains the dominant language atuniversity level. A specifically Slavonic culture university was established in1993 to reduce fears over the erosion of Russian culture. However, in general,budget cuts have resulted in a reduction in spending available for trainingteachers, and for purchasing textbooks and other resources.

The education system is hampered by low wages, a lack of investment inmaterials, and a continued drop in pre-school and primary school enrolment.The economic hardship suffered by the population has also taken its toll.

Official data probablyunderestimate unemployment

Education system remainsunderfunded

18 Kyrgyz Republic


According to the UN, the education of young girls and women is likely to bedisproportionately affected, given the growing trend towards early marriage andreduced post-degree employment chances. For most of the 1990s spending oneducation was severely curtailed, falling from 7.1% of GDP in 1995 to 3.3% in 2000.Although there were spending increases in 2001 and 2002, to 3.9% and 4.5% ofGDP, respectively, a reversal of the above trends remains a distant prospect.

A law on the state language of the Kyrgyz Republic was passed at the end of2003. Among many other controversial requirements the new law insists thatuniversity entrance examinations be conducted in Kyrgyz. This is only part of awider effort to supplant Russian with Kyrgyz as the language of common use.

Education trends1996 2001

No. of universities 39 48Enrolment ratio, all levelsa 65 71

Full-time secondary graduates (%) 88 94Secondary graduates, women (%)b 63 70Full-time tertiary enrolment (%) 63 59

Public expenditure on education (% of GDP) 5.2 3.9

a As a percentage of the total population aged 7-24. b As a percentage of females of normalgraduated age.


Health

One legacy of the Soviet system is that life expectancy and mortality rates inthe Kyrgyz Republic are better than in many countries with similar levels ofincome per head. However, the healthcare system is now in poor shape, withshortages of both doctors and medicine. The state has resorted increasingly topaid services, which has alleviated somewhat the decline in healthcare. Casesof tuberculosis, measles, influenza, bacterial dysentery, viral hepatitis and drugabuse increased dramatically in the late 1990s. The birth rate, which stood at 30per 1,000 population in 1980, fell to 21 per 1,000 by 2003. Infant mortality hasalso fallen, although data based on household surveys put the rate almosttwice as high as the official figures. There are also methodological discrepanciesbetween Kyrgyz statistics and international standards in measuring both thebirth rate and infant mortality, although the National Statistical Committee ispreparing to change methodology in 2004.

Health trends1996 2001

Public expenditure on health (as % of total public expenditure) 14.1 11.3Population per doctor 297 355

Life expectancy at birth (years) 66.6 68.7Infant mortality (per 1,000 births) 25.9 21.7

Maternal mortality rate (per 100,000 live births) 31.5 43.8Alcohol consumption (litres per adult) 3.6 4.2Cases of AIDS (per 100,000 population) 0.04 3.0a

a Increase is owing to abrupt growth of the sick mainly among rural male citizens aged 20-29.


Healthcare system is inpoor shape

Kyrgyz Republic 19


Natural resources and the environment

Natural resources, 2001(% of total unless otherwise indicated)

Population density (people per sq km) 25

Arable land 7Permanent grass land 1

Forest & wooded land 8Irrigated land (as % of total land area) 66

Source: UN, Kyrgyzstan Human Development Report, 2003.

The Kyrgyz Republic has a continental, high mountain climate. Winters are cold,and summers are generally warm except in high mountain areas. The countryis split by several mountain ranges running from east to west. Links betweenthe four northern provinces"Chui, Issyk-Kul, Naryn and Talas"and the threesouthern provinces"Osh, Jalalabad and Batken"are particularly tenuous. Thesouthern provinces form part of the Ferghana valley, most of which lies withinUzbekistan. Lake Issyk-Kul, in the east of the country, is one of the world!slargest high-altitude lakes. Except for a few cities and large towns, land use isoverwhelmingly agricultural, mostly high-altitude grazing. The Kyrgyz Republichas gold, antimony, tin, uranium and polymetallic ores, as well as limitedhydrocarbon reserves.

Transport, communications and the Internet

In 1996 the Kyrgyz Republic had 18,500 km of roads, of which 140 km werehighways and 3,160 km were main roads. Improvements to the road network,including the 650-km north-south highway linking Bishkek with Osh and thehighway from Osh to the Chinese border, are under way, funded partly by theAsian Development Bank (ADB). In May 2003 the Kyrgyz and Chinesegovernments announced a project to construct a road between the southernbank of Lake Issyk-Kul and the Aksu district of China!s Xinjiang region.

There are about 370 km of railway track. Passenger services, which receive largegovernment subsidies, were cut back sharply in 1999. There is a national planto expand the rail network in the long term, in order to end the KyrgyzRepublic!s dependence on its neighbours! railway systems, and to link thenorth and south of the country, as well as to establish the country as analternative corridor for trans-Asian rail traffic. The World Bank has providedfinancial backing for the development of urban passenger transport in Bishkek,Osh and Jalalabad. In June 2003 Kazakhstan and the Kyrgyz Republicannounced a joint project to build a 100-km railway line between Almaty andIssyk-Kul (80% of guests at resorts on Lake Issyk-Kul are residents of Kazakhstanand currently must rely solely on road transport for their journeys).Construction is to be completed by 2008.

Heavily subsidised internal flights link the principal towns, and over the pastfew years the modernisation of Bishkek airport has been supported byJapanese and other foreign investors.

Investment is sought fortransport infrastructure

20 Kyrgyz Republic


The telecommunications infrastructure is currently under reconstruction,supported by funding from the World Bank and the European Bank forReconstruction and Development (EBRD). The mainline telephone system wasestablished mainly in the 1960s and 1970s, and in 2000 the republic had only7.7 lines per 100 inhabitants, concentrated in the capital, Bishkek. This is morethan in neighbouring Uzbekistan (with 6.4 lines per 100 inhabitants in 1999),but compares unfavourably with the 12 per 100 inhabitants in Kazakhstan, andthe Western average of over 50 lines per 100 inhabitants. Further investmentinto the sector should be forthcoming, as the government is in the process ofselling a 51% stake in Kyrgyztelecom. Six firms have put in bids, and the winnermust be committed, not only to modernising the company, but also to investingin rural telephony. There are two mobile telephone operators in the KyrgyzRepublic, but the number of subscribers remains low, at 40,000 in early 2002.

The modernisation of the telecoms system has resulted in an expansion in useof the Internet: by April 2002, when there were ten Internet service providers,the number of subscribers had risen to 20,000, up from 3,000 at the end of1999. The government hopes to broaden Internet use further"including thedevelopment of e-commerce"through its national information and communi-cations technology strategy approved in March 2002, which aims to raise thesector!s share of GDP to 5% by 2010.

Media in the Kyrgyz Republic were relatively free until the president, AskarAkayev, began to curb their activities in 1995. Since then anti-governmentnewspapers have frequently run into trouble with the authorities, withjournalists receiving jail terms under Soviet-era laws that treat libel as acriminal offence. Since mid-2001 the parliament has been considering draftlegislation that would exclude libel from the criminal code and incorporate itinto the civil code.

The media is subject to less censorship than its counterparts in Turkmenistanand Uzbekistan, but overt political engagement has become harder over thepast three years. In effect, several papers have been closed down and in early2002 legal cases halted the operation of several papers critical of thegovernment.

More than 400 newspapers were registered in late 2001, but the reach of mostof them is limited. Russian-language newspapers published in Bishkek have byfar the largest circulation: in 1998 more than 80% of newspaper copies soldwere in Russian. Because of the country!s mountainous terrain, only one of theeight television channels (state-owned) broadcasts nationally. As with the printmedia, Russian-language channels, including ORT and RTR, attract the largestaudiences. According to the UN, the number of television sets dropped from 18per 100 inhabitants in 1992 to just 8 per 100 inhabitants in 2000.

Energy provision

Although the Kyrgyz Republic has small deposits of mineral fuels"producingabout 80,000 tonnes of oil (15% of domestic consumption) and 30m cu metresof natural gas annually"it is forced to import most of its requirements from

Most oil and gas is imported

Telecommunications system isimproving slowly

Press freedom is being eroded

Kyrgyz Republic 21


neighbouring countries, owing to a shortage of investment in extractionfacilities. Domestic coal production is also insufficient for the country!s needs.Energy consumption is relatively high, given the country!s average income level.The government has yet to introduce a comprehensive plan for reducing energydemand, although electricity tariffs have been raised in order to bring them tocost-recovery levels by end-2003 and to reduce the quasi-fiscal deficit in theenergy sector, estimated at 7.3% of GDP in July 2001. In late 2001 thegovernment began to restructure the energy sector by splitting the majoritystate-owned electricity company, Kyrgyzenergo, into several joint-stockcompanies, but privatisation is proceeding slowly, held up in part by delays inimplementing a regulatory framework for the energy market.

The Kyrgyz Republic possesses substantial water resources, much of which aredirected to Kazakhstan and Uzbekistan in return for coal and gas. These haveenabled it also to become a large hydroelectricity provider to the Central Asiangrid. However, development of the hydroelectricity industry is hindered by thepoor state of the power supply infrastructure and the fact that the maincustomers"Kazakhstan and Uzbekistan"do not pay market prices for electricity.Attempts have been made to integrate use of the region!s natural resources,with payment for water, electricity and fuel increasingly being made in theform of energy swaps rather than hard currency. The Kyrgyz Republic has alsofaced problems managing its water resources, making the country heavilydependent on foreign sources of energy during times of drought.

Negotiations between the Kyrgyz Republic and the downstream republics aretherefore a persistent source of tension. Most recently, the governments ofRussia and Kazakhstan suggested an arrangement whereby they would takecontrol of the Kyrgyz water supply in return for investment in two hydroelectricpower plants and dams. Kazakhstan, in particular, has been putting pressure onthe Kyrgyz authorities to allow Kazakh representatives to sit on the board of theToktogul hydroelectric plant in return for investment in new plant. Kyrgyzofficials quickly rejected the proposal, but are in the process of building anotherhydropower plant at Kambar-Ata, which will export electricity to Russia!s Omskregion (via a swap deal with Kazakhstan), as well as China and possiblyPakistan. State funds are being used to finance the construction, but thegovernment has raised the possibility of attracting investors or setting up aRussia-Kazakh consortium.

Pilfering of electricity"by both enterprises and households"and leakagesamount to 45% of total electricity production. Poor co-ordination among theformer state monopoly generating company, Kyrgyzenergo, and the ancillarypower transmission and distribution companies, as well as the tolerance of asubstantial build-up in payment arrears have also contributed to rising debts.As a result, the IMF estimates that total electricity-sector indebtednessamounted to 12% of GDP in 2002. The government has already begun to tacklethese problems by creating a special representative of the Kyrgyz president forelectric power security (with the rank of deputy prime minister). He is taskedwith instituting proper accounting methods, improving payment collection and

Use of natural resourcescontributes to regional tension

Electricity sector inefficiency isa drain on resources

22 Kyrgyz Republic


prohibiting barter payments. Tariffs will also be increased, as recommended bythe IMF, to offset losses.

The possibility of the participation of Russia!s Unified Energy System (UES) incompleting the stalled construction of the two Kambar hydroelectric powerstations should significantly increase the Kyrgyz Republic!s capacity forelectricity exports to third countries. Negotiations are being conducted betweenthe Kyrgyz Republic and China and Pakistan to this end. UES already has anagreement with the Kyrgyz government to receive electricity supplies throughKazakhstan, although these were curtailed at the start of 2004 after theShardarinsky protocol required a reduction in Kyrgyz power production inorder to avert flooding of the Syr Darya basin. In February an economicco-operation agreement with the governor of St Petersburg, ValentinaMatviyenko, suggested that another Russian enterprise, Silovye Mashiny, mightbe involved in the reconstruction of two or more Kyrgyz power stations in theUch-Kurgan and At-Bashin regions.

The economy

Economic structureMain economic indicators, 2003GDP (% change, year on year) 6.7Consumer price inflation (av; %) 3.5

Current-account balance (US$ m) -108.0a

External debt (end-period; US$ bn) 1.7a

Exchange rate (av; Som:US$) 43.7

a Economist Intelligence Unit estimate.

Sources: Kyrgyz National Statistical Committee; Economist Intelligence Unit.

Agriculture contributes about 35% of GDP and, after services, remains thebedrock of the Kyrgyz economy. Much of the country consists of high-altitudesteppe that is used mainly for grazing. Grain production is concentrated in thelower valleys. Subsistence agriculture is becoming more common as workerslaid off by the failing manufacturing sector return to farming.

Industry accounts for just under 15% of GDP, most of which is attributable togold mining. Manufacturing is concentrated mainly in Bishkek and the Chuiregion, with pockets in the few other urban areas, notably Osh. Gold andantimony mines are located in remote mountain areas. The services sectoraccounts for around 40% of GDP, much of which is contributed by the trade andcatering sector, which is mostly made up of small private enterprises. Theconstruction sector and the transport and communications sector eachcontribute under 5% of GDP. Exports of goods and services as a percentage ofGDP by expenditure rose strongly in the late 1990s"mainly as a result of thedevelopment of the Kumtor gold mine.

Agriculture is the bedrock ofthe economy

Kyrgyz Republic 23


Comparative economic indicators, 2003Kyrgyz Republic Uzbekistan Azerbaijan Russia Kazakhstan

GDP (US$ bn) 1.9 8.7a 7.1 433.5 29.8GDP per head (US$) 379 339a 865 a 2,997a 1,995a

GDP per head (US$ at PPP) 3,110 2,582a 4,015 a 8,285 8,127a

Consumer price inflation (av; %) 3.5 13.1a 2.1 13.7 6.6

Exports of goods fob (US$ bn) 0.6 3.1a 2.6 135.9 13.2Imports of goods fob (US$ bn) -0.7 -2.4a -2.7 -75.4 -9.1Current-account deficit (US$ bn) -0.1 0.4a -2.0 35.9 -0.1

External debt (US$ bn) 1.7 a 4.5a 1.6 a 173.2a 22.8a

Debt-service ratio, paid (%) � 29.1a 5.5 a 9.4a 33.1a

a Economist Intelligence Unit estimate.

Source: Economist Intelligence Unit.

Economic policy

At independence in 1991 the Kyrgyz Republic inherited an economy fullyintegrated into the Soviet economy. The country!s major tasks have been torestructure the economy in order to halt the rapid contraction that followedthe break-up of the Soviet Union and to bring down the high levels ofinflation that resulted from a move towards liberalised prices. In the early1990s, drawing on support from Western and international donors, thepresident, Askar Akayev, pursued a market reform programme in the face ofopposition from conservative bureaucrats and a parliament accustomed toSoviet-style planning.

Mr Akayev!s constitutional reforms have increased his control over all signif-icant aspects of policy. Effective opposition to his economic programmes is nowalmost absent from the political arena, although it survives in the bureaucracy.

The government has drawn up a national strategy for poverty reduction, whichis to form part of a ten-year comprehensive development programme. InDecember 2001 the IMF approved a US$101.7m three-year poverty reductionand growth facility (PRGF) for the Kyrgyz Republic, which is aimed atsupporting this strategy. The government!s main policy priorities under the newarrangement are further macroeconomic stabilisation, the implementation of acredible external debt strategy and further structural reforms. The World Bank!snew Country Assistance Strategy for the Kyrgyz Republic for 2003-2006 alsosupports the poverty reduction strategy, with an aid/grant package totallingUS$171m for infrastructure and state management reforms.

Main economic policy initiatives

1993

A new national currency, the som, is introduced.

1994

An economic restructuring programme is agreed with the IMF. Budgetary andinflation targets are set. Price liberalisation and the removal of government subsidiesare also envisaged.

Market reform has led torestructuring

24 Kyrgyz Republic


1995

The privatisation of medium-sized enterprises begins, but is suspended in 1997 (only60% complete) amid allegations of corruption.

June 1998

IMF economic restructuring agreement is renewed for a second three-year period.

August-December 1998

The government sticks to its pledge to allow the currency to float, as the somplummets by 30% in nominal terms against the US dollar in the wake of the Russianfinancial crisis.

October 1998

A referendum approves a proposal put forward by the president, Askar Akayev, forthe full privatisation of land, but Mr Akayev subsequently acquiesces to parliament!sdecision to place a five-year moratorium on the plan.

January 1999

The new government presents an anti-crisis reform programme.

April 1999

To increase its hard-currency reserves, the government announces plans to boostgold output, and invites tenders for three new deposits.

December 2000

The number of ministries and civil servants is cut in order to reduce expenditure.

December 2001

The IMF approves a new three-year poverty reduction and growth facility (PRGF)arrangement for 2001-04.

March 2002

The government concludes a debt-rescheduling deal with the Paris Club of creditors.

February 2004

Ministry for Economic Development, Industry and Trade created to increase exportsand foreign direct investment (FDI) in order to sustain economic growth.

March 2004

Third stage of agricultural reform introduced to be implemented over ten years.

Like other post-Soviet economies, the Kyrgyz Republic has experienceddifficulty in stemming the revenue shortfall that accompanied economicdecline and in reducing the bloated budgetary commitments inherited from thecommunist era. The government has nevertheless had some success inreducing public expenditure and, since 1995, in reforming the tax structure. Thiscontributed to a steady reduction in the government!s budget deficit as apercentage of GDP throughout the late 1990s, and enabled the government torecord a small consolidated budget surplus in 2001. However, budget planningand revenue collection remain problematic, and a series of natural disastershave placed unexpected demands on state expenditure, as a result of which thebudget posted a deficit in both 2002 and 2003.

Budget performance improves

Kyrgyz Republic 25


Revenue is extremely low as a percentage of GDP, and attempts to rationalisesocial and welfare programmes"which account for more than 50% of budgetexpenditure"have had only limited success. Political considerations (2004 is apre-election year) have helped to keep spending on social programmes high.

Consolidated government finances, 2003Som m % of GDP

Total revenue incl grants 16,214.9 20.2Total revenue 15,753.4 19.6 Current revenue 15,616.7 19.4 Tax revenue 11,916.5 14.8 Income tax 1,208.0 1.5 Profit tax 913.1 1.1 Value-added tax 5,526.3 6.9 Excise taxes 1,164.0 1.5 International trade taxes 422.8 0.6 Non-tax revenue 3,700.2 4.6 Capital revenue 136.7 0.2Grants 461.5 0.6Total expenditure 16,895.9 21.0 Defence 5,052.0 6.3 Education 3,752.7 4.7 Healthcare 1,630.0 2.0 Social insurance 2,587.8 3.2 Housing & utilities 1,193.4 1.5 Subsidies to economic sectors 1,840.6 2.3Balance -681.1 -0.9

Source: Kyrgyz National Statistical Committee.

Budget planning has been put under pressure by poor tax revenue frominadequate collection performance and the narrow tax base. In particular, thelarge size of shadow economy"estimated at 40-50% of GDP"has kept profitand income tax receipts, as well as investor confidence, low. This hasconcentrated the government!s focus since 2003 on broadening the tax base toencompass market and shuttle trading. The introduction of a higher 20% value-added tax (VAT) on large agricultural producers has not been offset by alowering and simplification of taxes on small companies, which would help toreduce tax avoidance, but further revisions to the 1996 tax code are to beimplemented in 2004.

The Kyrgyz Republic!s external debt burden has been stubbornly high since1999, and is a major drain on the government!s finances"this is partly owing tothe public investment programme, which has been financed largely by foreignborrowing. External debt amounted to US$1.7bn at the end of 2003 (93% ofGDP). In March 2002 the government concluded a debt-rescheduling agreementwith the Paris Club of creditors, which reduces its debt-service burden in 2002-04 from US$101m to US$5.6m and will be renegotiated in early 2005.Government policy has begun to concentrate on attracting foreign directinvestment (FDI) and non-gold export potential to lessen the reliance on debtinflows, to sustain real GDP growth, and to counteract a reduction in capitalinvestment of 9% in 2003, which bucked the trend elsewhere in theCommonwealth of Independent States (CIS). FDI increased by 27% in 2003,

FDI and exports to underpinGDP growth

Attention on fiscal policyincreases

26 Kyrgyz Republic


mainly owing to investment by Russian and Kazakh firms in the energy sectorand the military-industrial complex.

The third stage of agricultural reform, to be implemented over the next tenyears, is based on the creation of a system of large farm co-operatives and arural banking and credit system. Larger agricultural units are intended tofacilitate tax collection"currently the agricultural sector contributes 3% of taxrevenue"as well as economies of scale. Agri-processing, output volume inwhich has declined by one-third in the past three years, is one of the mainsectors earmarked for export development. The first stage, in 1991-93, set upsmall farmers in disused and unproductive zones, and in 1994 the legal basis forreform of the agrarian sector was put in place.

In 1998 the government embarked on the third and final stage of itsprivatisation programme, having suspended the second stage in 1997, whenallegations of corruption led to the dismissal of the head of the governmentprivatisation agency. However the third phase has proceeded slowly, and is farfrom complete. Although in the first half of 2002 the government reported thesale of some 41 enterprises"from which the state received a total of Som59m(US$1.3m)"all the so-called "strategic" enterprises remain in state hands. InNovember 2002 the government approved the privatisation of the four strategicenterprises that were benchmarked in the third phase of the IMF!s PRGF:Kyrgyztelecom, KyrgyzAir, KyrgyzGaz, and four distribution companies ofKyrgyzenergo. The government!s failure to sell these assets is explained by bothdomestic opposition and a lack of external investor interest.

The government has made some progress on land reform. A referendum inOctober 1998 endorsed Mr Akayev!s plans to allow full private ownership ofland, but the president subsequently accepted a decision by parliament to placea five-year moratorium on the proposals. In December 2000 the moratoriumwas partly lifted, after enactment of a presidential decree in which Mr Akayevargued that the ban breached the constitutional rights of many citizens. Amongother restrictions, the new law prohibits the sale of land to legal entities andforeign corporations, and restricts to 50 ha the area that can be sold.

Economic performance

Real GDP in the Kyrgyz Republic plummeted by 50% in the first four years afterindependence. Solid real GDP growth emerged only in 1996, driven mainly byagriculture and the development of the Kumtor gold mine, which nowaccounts for about 7% of GDP. Real GDP growth strengthened in 1997 and early1998 with the start of Kumtor production, but then decelerated rapidly owing tothe Russian financial crisis. Driven by strong growth in the agricultural sectorand increased production at the Kumtor mine, real GDP growth recovered to anannual average of 4.6% in 1999-2001. However, the economy!s over-reliance onKumtor was made evident in 2002, when an accident at the mine led to a haltin production and resulted in a 0.5% contraction in real GDP. Recovery inKumtor!s output and favourable world gold prices and demand have resulted ina consequent leap in real GDP growth, to 3.7%in 2003.

Agricultural reform continues

Privatisation programme stalls

Limited progress inland reform

GDP growth picks up from thelate 1990s

Kyrgyz Republic 27


The important role of the agricultural sector in the economy renders GDPgrowth also extremely dependent on favourable weather conditions.Nevertheless, dependence on agriculture has lessened since 1997, when goldproduction from the Kumtor mine began to make a significant contribution toGDP. With the exception of the textiles and clothing sector, non-gold industrialproduction has shown almost no real growth since the rapid declineexperienced in the early 1990s, as enterprises continue to suffer from under-investment and slow deregulation and restructuring.

A 20% decrease has been achieved since 1998 in the number of people livingbelow the poverty line (considered to be US$42 per month in the KyrgyzRepublic), and the trend continued in 2003 with a reduction of 3.6%.Nevertheless, it is estimated that about one-half of the population, or 500,000families, remain in poverty. However, official wage data can only be taken asan approximate indication of income trends and levels, given the size of thegrey economy"according to official estimates, this might account for as much as50% of GDP. By 2001 average real wages had recovered to the level recordedbefore the 1998 financial crisis, and continued to rise to US$44/month in early2004. Workers in the healthcare and agricultural sectors earn only half thenational average. This exacerbates regional disparities"particularly between theagricultural south and the relatively more industrialised north. Poverty in thesouthern regions may be as high as 80%.

Tight monetary policy reduced annual consumer price inflation from anaverage of over 700% in 1993 and 200% in 1994 to around 10% by mid-1998.However, the Russian financial crisis in August 1998 precipitated a run on thecurrency and a rapid rise in prices, particularly for imports, which the NationalBank of the Kyrgyz Republic (NBKR, the central bank) could do little to stem.Year-on-year inflation consequently rose to a peak of 48% in October 1999. Themaintenance of a tight monetary policy by the NBKR, combined with a slightnominal appreciation of the som against the US dollar, had brought the annualrate down to 2.3% by end-2002"the lowest rate since independence. Inflationhad fallen to below 1% year on year by September 2003, but rose sharplythereafter as a result of instability in food and services prices; average annualinflation was 3.5% in 2003.

Regional trends

The Kyrgyz Republic is split by several high mountain ranges, which has meantthat links between the north and the south of the country have been tenuous.Russian colonisation in the early 20th century created urban centres in thenorth such as the capital, now known as Bishkek, while the towns in the southof the country, such as Osh, had large populations of ethnic Uzbek. The steadymigration of formerly rural ethnic Kyrgyz into the southern cities contributed toa rise in inter-ethnic tensions in the early 1990s.

Tensions have been exacerbated by concerns over the influence of regionalnepotism in Kyrgyz politics, with members of the government traditionallychosen from the north of the country. The president, Askar Akayev, has been

Tight monetary policy hasreduced inflation

Strong real GDP growth hasslightly reduced poverty

Tensions between the northand south persist

28 Kyrgyz Republic


partly successful in managing the regions by maintaining presidential controlover the regional governors and by shuffling posts within the central govern-ment. Nevertheless, many of Mr Akayev!s most vocal critics hail from the south,and there is a need for further attempts to redress perceptions of northerndominance in the political hierarchy. Moreover, levels of poverty and socialexclusion are highest in the south of the country, which has contributed to therise in support for religion-based movements such as Hizb ut-Tahrir, particularlywithin the ethnic Uzbek community. A number of construction projects arecurrently under way to improve links between the north and south of thecountry, while additional funding has been allocated to the southern regions toimprove amenities.

Economic sectors

Agriculture

Agriculture is one of the leading components of GDP, after services, accountingfor 33% of the total in 2003 and playing a crucial role in absorbing the labourforce left without work as a result of the decline of the industrial sector. Thesector!s percentage share of GDP has declined slightly since 1998, but is morethan two-thirds higher than the share accounted for by manufacturing.Livestock grazing on the high-altitude steppe that covers much of the country isthe most prevalent form of agricultural activity, although dwindling ruralincomes have forced farmers to sell off livestock in order to sustain theirfamilies. Private farms now account for about 40% of Kyrgyz agriculturalproduction; the state sector contributes only 5% of total agricultural output andprivate household plots make up the rest.

After six consecutive years of relatively solid growth (albeit from a low base),output in the agricultural sector in the Kyrgyz Republic now exceeds the levelsrecorded at any time since independence"in contrast to other parts of theeconomy and nearly all other members of the Commonwealth of IndependentStates (CIS). The sector suffered a sharp post-independence decline, as thecollapse of the Soviet economic system resulted in a critical shortage offertiliser and replacement parts for agricultural machinery"most of which hadbeen sourced from other Soviet republics. Yields therefore plummeted in theearly post-independence years. Since then the agricultural sector has struggledto adjust to the higher prices charged for fertilisers, fuel and other inputs. It alsocontinues to suffer from the slow development of the banking sector, whichhas hampered private investment into the sector. Consequently, agriculturalyields have not, in general, recovered to their pre-independence levels.Moreover, considerably more reform is required to establish a market structurefor input allocation and to boost low levels of agricultural sector productivity.

Grain production, mainly wheat, accounts for nearly one-half of all agriculturaloutput and is concentrated in the lower valleys, where the soil is of betterquality. Since independence the government has sown more land to grain in alargely successful attempt to attain self-sufficiency in wheat and thereby reducethe strain imposed on the budget by import subsidies. As a result, much land

Agricultural output rises by3.8% in 2003

Agriculture contributes morethan one-third of GDP

Kyrgyz Republic 29


formerly used for grazing"especially at lower altitudes"has been lost to wheatproduction. In 1999-2000 Kyrgyz Republic had cereal harvests of around1.6m tonnes, but this rose in 2001 to 1.8m tonnes, and then in 2002 to1.75m tonnes, of which 1.3m tonnes consisted of wheat. The most recent dataavailable confirm a reduction in the grain harvest, to 1.67m tonnes in 2003, justunder two-thirds of which consisted of wheat. The contraction in the harvest ispartly a reflection of inclement weather"including heavy rains, floods andlandslides in the south of the country during the spring growing season"whichdestroyed almost 12,000 ha planted to grain. This exacerbated the alreadyconsiderable reduction in the area planted to grain in response to negative pricetrends in recent years. These had convinced many producers to switch towardsother crops such as cotton, tobacco, potatoes, sugarbeet and vegetables. Withagricultural producers expected to switch increasingly away from crops such ascotton and tobacco"partly owing to fluctuating global prices for thesecommodities"the government forecasts that annual grain production will reach2.5m tonnes within a decade. Hay, forage, dairy products, potatoes, vegetablesand sugarbeet also contribute substantially to agricultural output.

Disaggregated data available for January-October 2003 indicate that cropproduction increased by 4.1% and that output of livestock, which accounted foraround 40% of total sectoral output during that period, rose by 11.9%. Privatefarms account for roughly two-thirds of livestock and milk production, three-quarters of wool production and around 40% of egg output.

Agricultural production in the Commonwealth of Independent States(% of 1991 output)

1999 2000 2001 2002 2003Kyrgyz Republic 98 101 108 112 116Kazakhstan 70 67 79 81 82

Tajikistan 65 73 81 n/a n/aUkraine 56 61 68 69 61

Russia 61 66 71 72 73CIS average 64 69 74 77 75

Source: Interfax, CIS Statistical Report.

Mining and semi-processing

Gold, coal, uranium and antimony production dominated the Kyrgyz Republic!smining sector before independence. With gold production at the high-altitudeKumtor mine in the Tien Shan mountains in 1997, the gold sector now accountsfor around 45% of total industrial production. The 560-tonne deposit at Kumtoris believed to be one of the eighth-largest gold deposits in the world. As by farthe most important contributor to industrial production, Kumtor has helpedpartly to offset the sharp economic decline suffered by enterprises in the moretraditional industrial sectors. The state-owned mining corporation, Kyrgyzaltyn,controls all mining operations in the Kyrgyz Republic either wholly or throughjoint ventures. Although the Kyrgyz government retains two-thirds ownershipof Kumtor, the mine is operated by the Kumtor Operating Company, asubsidiary of Cameco (Canada). In 2003 Kumtor accounted for 17.3m tonnes of

Agricultural output rises in2003

Gold mining accounts foraround 7% of GDP

30 Kyrgyz Republic


the Kyrgyz Republic!s total annual gold output, which was around18.9m tonnes, down from a record high of 24.7m tonnes in 2001.

Following an upgrade to estimates of Kumtor!s total reserves, all economic oreat the mine is now expected to be milled by 2009, rather than 2007 aspreviously forecast. Progress has been slow in developing additional goldmining facilities in the Kyrgyz Republic, including the Jerui and Taldy Bulakdeposits, both of which were estimated recently by Kyrgyzaltyn, the state-owned mining company, to contain around 75 tonnes of gold. The NoroxMining Company"owned by Oxus Mining (UK) and indirectly controlled byMAED (South Africa), which became the major shareholder in Oxus at the endof 2002"has conducted a feasibility study of the Jerui mine (situated in theTalas valley in the north-western part of the country). Norox owns two-thirdsof the Talas Gold Mining Company that is authorised to develop Jerui, butwhich temporarily lost its licence in 2002 after failing to submit a feasibilitystudy on time. (Norox blamed low world gold prices.) Norox has sincenegotiated a return of the licence, but has delayed developing the site becauseof the Kyrgyz Republic!s unfavourable tax environment.

The extractive sector (which does not include gold mining) is tiny comparedwith manufacturing and utilities. The slump in the sector reflects a sharpdecline in coal mining, which the government claims is a reflection ofpreparation and stripping work currently being undertaken. The sectorcontinues to be dominated by the state-owned coal producer, Komur, whichaccounted for more than four-fifths of total coal output and which is sufferingfrom significant under-investment. The government is targeting a 30% increasein annual production, to 564,000 tonnes, in 2004.

The coal sector!s ongoing decline in early 2004 was only slightly mitigated byan improvement in oil and gas extraction, following a sharp slump in 2003.Unlike in most other Central Asian states, the oil and gas sector in the KyrgyzRepublic contributes only negligibly to overall output. Total oil production in2003 was only 68,500 tonnes, less than 1% of Kazakhstan!s annual output. The27.1m cu metres of gas produced in 2003 was around 0.5% of Turkmenistan!soutput. Oil and gas production is dominated by Kyrgyzneftegaz, but alsoinvolves two Chinese companies, Anbang and Proadtek, as well as a Kyrgyzfirm, Batkenneftegaz, although the latter accounts for a very small portion ofgas output. Kyrgyzneftegaz accounts for around 85% of total oil production, withAnbang contributing most of the rest. Kyrgyzneftegaz is still almost entirelystate-owned, although plans are under way for Russia!s Gazprom to take overcontrol of the Kyrgyz State Property Committee!s 85% share of the company.

Given the country!s only limited energy resources, the oil refining sector ismuch less important than in other parts of Central Asia. Although the KyrgyzRepublic has three refineries, only one, the Jalal-Abad oil refinery, is of anysignificance. The Jalal-Abad refinery, which is controlled by the KyrgyzPetroleum Company, accounted for all of the fuel oil and diesel produced in thecountry in 2003, and around 95% of the 25,600 tonnes of petrol produced. InJanuary-February 2004 the refinery accounted for over 98% of the total value of

Progress in developing newmines has been slow

The government hopes toboost coal production sharply

Kyrgyz hydrocarbons output isdwarfed by neighbours

Kyrgyz Republic 31


oil refinery output, with the remainder being produced at the Kara-Archarefinery (the third refinery was not in operation). According to the Kyrgyzgovernment, in February 2004 Petrofac Resources, a subsidiary of Petrofax (US),took over the 50% share of Kyrgyz Petroleum Company previously controlledby Kyrgoil (Canada). The remaining 50% is controlled by Kyrgyzneftegaz.

Production of enriched uranium for nuclear fuel is an area where trilateralco-operation has been agreed in recent months. A Russian-Kyrgyz-Kazakh jointventure, Zarechnoe, with heavy financing by Russia, will build a plant in thenext two years in Kazakhstan, which will be capable of producing 500 tonnesof uranium annually through processing in the Kyrgyz Republic.

ManufacturingIndustrial production in the Commonwealth of Independent States(% of 1991 output)

1999 2000 2001 2002 2003Kazakhstan 51 59 67 73 80

Kyrgyz Republic n/a 42 44 38 45Moldova 36 38 44 48 55Russia 54 62 65 67 72

Tajikistan 38 42 48 52 58Ukraine 54 60 69 74 85

CIS average 54 61 66 68 74

Source: Interfax, CIS Statistical Report.

The share of manufacturing in GDP declined sharply in the immediate post-independence years, owing to dislocations caused by the collapse of Soviet-eratrade links and the shock caused by the liberalisation of energy import prices.Compared even with other members of the Commonwealth of IndependentStates (CIS), the decline of the Kyrgyz industrial sector was extremely steep.Even after recovering moderately with the development of the Kumtor goldmine in the second half of the 1990s, the industrial sector still only accountedfor just under 15% of GDP in 2003. If the Kumtor gold mining facility isexcluded, industrial output has plummeted by around 70% since independence.There are few signs of any basis for a sustained industrial sector recovery. Thedifficulties experienced by the industrial sector reflect chronically low levels ofinvestment and restructuring"as seen by the continued slump in foodproduction, which accounts for 10-15% of total industrial output. Electricityproduction, a subsector that accounts for a similarly large share of overalloutput, has also struggled, most recently owing to reduced export demand andlow water levels at the country!s hydroelectricity generating facilities.

Machinery production, geared mainly towards agricultural equipment, wasfavoured during the Soviet era at the expense of light industry. Although thegovernment has felt the need to retain agricultural machinery productionbecause of its importance to crop yields, it has begun to reorient its industrialpolicy towards light industry, notably the clothing and textiles sector, to takeadvantage of domestic wool, cotton and silk production. Textiles and clothingoutput has flourished erratically, but it is too early to determine whether recentoutput growth can be maintained.

Manufacturing shows fewsigns of sustained recovery

32 Kyrgyz Republic


Other than the gold sector, the only other part of the economy contributingnotably to manufacturing output is agro-processing, which accounts for around25% of total manufacturing output (and just under 20% of total industrialoutput). Although growth in agro-processing slowed in the second half of 2003,the sector still expanded by around 8% year on year in January-November. Thisis in part a reflection of strong domestic demand, as well as the benefits ofincreased investment into this sector in recent years. These factors allowed mostcategories of food production to expand rapidly during the first eleven monthsof 2003. Textiles is the only other branch of manufacturing that is of anyprominence, accounting for as much as 10% of total manufacturing in the lastmonths of 2003.

Construction

The construction sector!s share of GDP in 2003 was just below 3%"down from6% in the mid-1990s, when the development of the Kumtor gold mine drovesectoral growth. Nevertheless, the sector has generally continued to expandsince the completion of Kumtor in 1997, including year-on-year growth of 16%in 2001 and 8% in 2002. Major infrastructure projects, funded by thegovernment or from international sources"notably improvements to the mainnorth-south road and the rebuilding of the Osh-Kashgar highway"areimportant components of this growth. The anticipated start of construction atthe Jerui gold mine in 2004 will bring further support to the sector. In terms ofhousing construction, little government-funded housing has been built in recentyears. Privatisation of the state-owned housing stock, which was completed by1995, allowed the government to divest itself of responsibility for themaintenance of housing, with the result that the condition of the housing stockhas deteriorated markedly.

Financial services

After independence, the Kyrgyz Republic!s banking system was reorganised,with a central bank"the National Bank of the Kyrgyz Republic (NBKR)"andabout 20 commercial banks. The NBKR is nominally independent of thegovernment, but in practice operates under government instruction and hasfaced occasional pressure from parliament to reduce its independence further.The government has implemented two stages of financial reforms, albeit athigh cost to the budget. In 1993-94 the banking authorities closed uncompetitivesmall banks that could not meet newly introduced minimum capital require-ments. In 1995-97 banking supervision was strengthened and measures wereintroduced to liquidate insolvent banks. Even after the closure of severalinsolvent banks in 2001, the banking sector is far from being able to play anysort of central role in investment financing.

Substantial improvements are required to increase the capitalisation of thesector, mobilise savings, improve bank supervision and strengthen thelegislative framework governing the sector. In 2002 the sector did experiencefurther stabilisation, as bank capital increased by more than 15% to Som1.8bn(US$38.4m) and combined assets rose by 56% to Som7.8bn. Liquid assets grew

Infrastructure projects containthe slump in construction

Further financial sectorstrengthening is needed

Kyrgyz Republic 33


most rapidly, a direct reflection of the appearance of new client paymentoptions, and, indirectly, of more prudent investment decisions. Banks! securitiesactivities increased by 41% to Som1bn in 2002.

Activity on the interbank money market grew tenfold in 1994-2001. In 2002alone, interbank lending grew fivefold. The stockmarket, where secondarytrading in government securities takes place, was opened in 1995, but plays littlerole in the allocation of financial resources. The government announced inJune 2003 that, with EU assistance, it was in the process of developing privatepension funds as part of a larger programme of pension reform, envisaged tobe completed by 2010.

Other services

Services (including financial services) now contribute more to GDP than theagricultural sector, following five years of gradual but steady recovery since1998. In 2003 the services sector accounted for some 35% of GDP. In particular,the government!s policy of economic liberalisation has succeeded in creating amyriad of family-run enterprises concentrated almost entirely in the trade andcatering sector.

Foreign tourism was largely undeveloped in the Soviet period, although thesanatoria around Lake Issyk-Kul"generally owned by state-run enterprises"werepopular with Soviet visitors. The mountain areas have begun to attract climbers,and the lower slopes and natural beauty of the country draw hikers andadventure tourists. Although tourist visits from former Soviet countries areestimated at more than 400,000 annually, tourists from outside the former SovietUnion still only number about 30,000 annually. As in most other members ofthe CIS, low investment into the tourism infrastructure is a major constraint onthe sector!s growth. Bishkek opened its first five-star hotel only in 2001.

The external sector

Trade in goods

The Kyrgyz Republic has led the other Central Asian republics in efforts toliberalise Soviet-era trade policies, and in 1998 became the first member of theCommonwealth of Independent States (CIS) to join the World TradeOrganisation (WTO). Nevertheless, efforts to diversify its trading partners, aswell as its export goods, have not proved easy. The Kyrgyz Republic!sgeographical isolation and dependence on fuel imports have left it highlydependent on imports from other members of the CIS. Imports from the CIS asa percentage of total import costs have therefore fallen only moderately,averaging about 50% in 1998-2003, compared with just over 60% in 1994-97.Although the ongoing import compression in the Kyrgyz Republic hasdisproportionately affected purchases from Russia, the latter remains the largestsource of imports, accounting for around 25% of the total in 2003. Kazakhstan isan important source of imports as well, accounting for 24% of import

Contribution of services toGDP has risen to 35%

Imports still come mainly fromthe CIS

34 Kyrgyz Republic


expenditure in 2003. Imports from Uzbekistan fell to 5% of the total in 2003,from much higher levels in previous years.

Main trading partners(% of total)

2002 2003Exports fob to:United Arab Emirates 14.2 24.8Switzerland 19.8 20.1Russia 16.5 16.7Kazakhstan 7.6 9.8Canada 1.0 5.3

Imports cif from:Russia 19.9 24.6Kazakhstan 21.1 23.8China 10.1 10.8US 8.1 6.9Uzbekistan 10.3 5.5


The Kyrgyz Republic has recorded a sharp decline in trade turnover since themid-1990s, with export revenue down by some 20% and import expenditure by17% compared with 1997 levels. On the import side, this reflects both thecompletion of construction at the Kumtor mine (which led to a more thantwofold increase in expenditure on machinery and equipment in 1996-97) andthe sharp import compression that resulted from the regional economic crisisand devaluation of the som in 1998"although this trend was reversed in 2002and 2003. Import compression has, in particular, affected purchases critical tothe recovery of non-gold industrial exports, including machinery andequipment, construction materials, metals and fuels.

According to national balance-of-payments data, the merchandise trade deficitexpanded to US$82.7m in 2003, up from US$54m in 2002. Export earnings wereUS$590m, and imports reached US$673m"both sides of the trade balance risingby around 20% compared with 2002. The Kyrgyz Republic remains extremelydependent on its gold exports, which account for roughly 40% of exportearnings, including more than two-thirds of the export revenue earned outsideof the CIS. The government expects little change in 2004, and has forecast a lessthan 1% rise in non-Kumtor exports in 2004, compared with a 10% rise inexport earnings overall. The vast majority of Kyrgyz gold exports havetraditionally been shipped to Switzerland and Germany, although the UnitedArab Emirates took over as the major gold buyer in the second quarter of 2003.

The Kyrgyz Republic has not been particularly successful in diversifying itsexport base beyond the gold sector. The only significant exports aside fromgold are mineral fuel, textiles and electricity. With only a few exceptions, allother export categories each account for well below 5% of exports. Theimportance of mineral products has risen in the past few years, largely owing toan increase in sales of aviation kerosene to the international military presencein the Kyrgyz Republic since the start of the war in Afghanistan. Cottonfibre and tobacco are the Kyrgyz Republic!s two key manufacturing exports toCIS markets.

Kyrgyz Republic 35


Regional electricity markets represent a promising export prospect for theKyrgyz Republic, given its considerable hydroelectricity generating capacity. In2003 the Kyrgyz Republic exported 1.7bn kwh, valued at just under Som820m(US$18.8m). Around 40% of this went to Russia, all in the last four months ofthe year. The two countries have reached an agreement whereby Kyrgyz powerplants will export 1.5bn kwh annually for the next five years.

By far the most significant rise in imports has come in purchases fromKazakhstan, a major source of energy imports. Kazakhstan is one of the mostimportant trade partners for the Kyrgyz Republic, which sends dairy products,construction materials and glass to the Kazakh market. Kazakh imports haverisen as a result of rising energy costs and a reduction in Kyrgyz excise duties onfuel imports during the first half of the year, and in January 2004 they reachedUS$11.9m, compared with US$7.3m in January 2003. Other noteworthy bilateraltrade developments include a sharp fall in trade turnover with Uzbekistan overthe course of 2003. This was largely a consequence of border-crossing issues,and underlined ongoing Kyrgyz concerns regarding market access for its exports.

Invisibles and the current accountCurrent account(US$ m)

2002 2003Exports of goods fob 498.1 590.3Imports of goods fob -552.1 -673.0

Trade balance -54.0 -82.7Services: exports 142.0 154.9

Services: imports -147.4 -147.9Services balance -5.4 7.0Net incomes -56.2 -61.7Net transfers 88.4 111.7Current-account balance -27.2 -25.6


The combined goods and services deficit averaged more than 17% of GDPthroughout the mid- to late 1990s, and peaked at more than 25% of GDP in 1996,at the height of Kumtor construction. Current transfers, consisting mostly ofhumanitarian and technical assistance from the US, Europe and Japan, havebeen relatively high, at an annual average of more than 5% of GDP in the 1990s.However, this has only partly offset the Kyrgyz Republic!s substantial tradeimbalances, which, combined with moderate deficits in net income, havegenerally produced extremely high current-account deficits in relation to GDPthroughout the post-independence period. The current-account deficit fell tobelow 9% of GDP only in 2000, but then narrowed even further to average justunder 4% of GDP in 2001-03. This reduction reflects lower oil import prices,and also the sharp drop in investment recorded in 2001, which greatly reduceddemand for investment-related imports. Oil imports may widen the deficitnoticeably in 2004.

Russia is the major buyer ofKyrgyz electricity

Trade with Kazakhstan risessharply and Uzbek trade falls

36 Kyrgyz Republic


Capital flows and foreign debt

Even with the narrowing of the current-account deficit recorded in recent years,the Kyrgyz Republic continues to depend on balance-of-payments support frominternational creditors to help in financing its external imbalances. Portfolioinvestment is negligible, and foreign direct investment (FDI) inflows have fallensharply since the end of construction at the Kumtor gold mine. Annual averageinflows of FDI were equivalent to about 4.6% of GDP between 1995 and 1999during Kumtor construction"only slightly below FDI inflows into Kazakhstanin this period (6.4% of GDP) and well above those into Russia (1% of GDP).Since then, however, FDI inflows have fallen sharply. Despite the introductionof special incentives for foreign investors and a liberal exchange-rate regime, theKyrgyz Republic has proved unsuccessful at boosting FDI. Despite a rise of morethan 18% in 2002, total FDI inflows since independence are under US$550m,most of which is centred on joint ventures in the gold mining sector. Thecapital, Bishkek, has received 50% of the country!s total FDI inflows.

The Kyrgyz Republic continues to struggle to attract foreign direct investment(FDI). During 2003 net FDI equalled US$45.5m. In recent years interest fromWestern investors has been limited, and the Kyrgyz authorities are increasinglylooking to more traditional partners in the CIS. The sale of Kyrgyz assets tocompanies from the CIS is more acceptable to the population than seeingWestern companies benefit from privatisation, but in any case Russian andKazakh companies are the only ones likely to be comfortable in the KyrgyzRepublic!s opaque business environment, given its similarities to theirdomestic markets.

According to the World Bank, the Kyrgyz Republic!s total external debt stockwas US$1.7bn at the end of 2001, equivalent to 112% of GDP. Some 45% of this isowed to multilateral institutions on concessionary terms. Faced with anincreasingly unsustainable debt burden over the past couple of years, theKyrgyz government renegotiated part of its debt to Russia, which is estimated ata total of US$175m and is now to be repaid with construction materials, andrestructured its US$100m debt to Turkey. The Kyrgyz government has alsosubstantially reduced its 2002-04 financing requirement, by securing a debtrestructuring deal with the Paris Club group of bilateral lenders in March 2002.The restructuring includes around US$99m contracted by the Kyrgyz govern-ment before August 2001, and due between December 2001 and December2004. The restructuring deal sharply reduced the government!s Paris Club debt-servicing costs in 2002-04 to just over US$5m, thanks to generous repaymentterms and lengthy grace periods. Just under 25% of the debt (consisting ofofficial development assistance"ODA"credits) received a ten-year grace periodand concessional interest rates, whereas commercial credits received a five-yeargrace period and higher market-based interest rates. The total stock of debtowed to Paris Club creditors in November 2001 was around US$450m, ofwhich about 50% consisted of ODA debts.

The country faces a heavydebt-service burden

Except for Kumtor investment,FDI inflows remain low

Kyrgyz Republic 37


Foreign reserves and the exchange rate

Until the Kazakh tenge was floated in April 1999, the Kyrgyz som was the onlyfreely floating currency in Central Asia. In real effective terms, the somappreciated sharply in the first three years following its introduction in 1993,owing to relatively high inflation. From 1997 onwards more rapid nominaldepreciation and lower inflation sparked a trend of real effective depreciationof the currency. In the year following the onset of the Russian financial crisis inAugust 1998 this real effective depreciation accelerated. Inflation rose sharplyand the nominal value of the som halved, owing to a loss of confidence in thecurrency and increased demand for US dollars following the devaluation of theRussian rouble and the Kazakh tenge.

With greater regional currency stability, stronger real GDP growth and tightermonetary policy, the som showed far greater nominal stability in 2000 and2001, and began to appreciate in real effective terms. The som continued its realeffective appreciation in 2002, but still remained at around half its value priorto the 1998 regional currency crisis. The Kyrgyz currency weakened marginallyagainst the US dollar in the last few months of 2003. In part as a result ofgreater domestic liquidity, the som recorded an almost 7% nominal depreciationagainst the US dollar during the second half of 2003. Nevertheless, the som!syear-end rate was still roughly 5% stronger in nominal terms than at thebeginning of the year, and the average rate for the year was 7% stronger than in2002. The som!s strength reflects in part the general currency stability evidentin the region, a relatively sound mix of fiscal and monetary policy, and greatermacroeconomic stability. Much of its strengthening against the US dollar alsoreflects the US currency!s slide against other major currencies over the courseof 2003. In contrast to its rate against the US dollar, the som!s rate against theeuro weakened considerably over the course of 2003. As a result, even thoughinflation in the Kyrgyz Republic accelerated during the final months of the year,the real effective exchange rate is estimated to have remained roughlyunchanged. It also remains well below the levels reached prior to the som!sdepreciation during the regional financial crisis in the late 1990s.

In an effort to defend the value of the som at the height of the regionalfinancial crisis in the second half of 1998, official reserves fell by about 20% toaround US$190m, equivalent to two months of import cover. Since early 2001reserve levels have climbed gradually, and were around US$364m at the end of2003, equivalent to around seven months of goods and services import cover.

Som is recovering from 1998financial crisis

Reserves recover graduallyfrom 1998 slump

Kyrgyz Republic 38


Regional overview

Membership of organisations

The Central Asian Regional Union (CARU) was created formally by thepresidents of Kazakhstan, the Kyrgyz Republic and Uzbekistan in January 1994,in order to provide stability and security through the establishment of acommon market and regional structures. CARU!s origins date back to June 1990when the five Central Asian Soviet Socialist Republics signed a treaty designedto regulate economic integration between themselves. This was followed byvarious declarations and measures intended to create a political union.However, by 1993 Turkmenistan was forging its own independent and neutralpolicy, and Tajikistan was mired in civil war. These factors hampered thedevelopment of a region-wide union, although Tajikistan did join at thebeginning of 1998, despite poor relations with neighbouring Uzbekistan. In July1998 the name of the union was changed to the Central Asian EconomicCommunity (CAEC) to reflect the intensification of economic links between themembers. In reality it masked greater competition between the states to attractWestern investment.

The union!s structure follows that of the Commonwealth of Independent States(CIS): it has an Interstate Council, consisting of the presidents and primeministers of the four member countries; a Council of Prime Ministers; a Councilof Ministers of Foreign Affairs; and a Council of Ministers of Defence. Itspermanent working body is the Executive Committee (Ispolkom). Since 1997Russia has been an official observer in the Ispolkom. Notwithstanding repeateddeclarations by the core three Central Asian leaders that CARU was a purelyeconomic union, the failure to create an effective defence union within the CISto tackle destabilising problems associated with the Tajik and Afghan civilwars"in particular the growth of narcotics and arms smuggling, refugees andIslamic radicalism"led the three states to establish closer military and defencerelations among themselves from the beginning of 1994.

Although agreements to adopt common positions on questions of regional andinternational security remained largely on paper, Kazakhstan, the KyrgyzRepublic and Uzbekistan were successful in 1996 in creating a regional battalionof peacekeepers, Tsentrazbat, under UN auspices. This has since been funded byNATO!s Partnership for Peace programme. The terrorist bombings in Tashkent inFebruary 1999, and incursions by radical Islamic groups into the region in 1999and 2000, boosted security co-operation among the four member countries. InApril 2000 they signed a ten-year security treaty to combat threats frominternational terrorism. This aspect of the union was further emphasised inJanuary 2002, when the union was renamed the Central Asian Co-operationOrganisation (CACO).

The Commonwealth of Independent States (CIS) was established on December8th 1991 by the Minsk Agreement signed by the heads of state of the Republicof Belarus, the Russian Federation and the Republic of Ukraine. The Agreementbetween the three republics sealed the end of the Soviet Union. The formal

Commonwealth ofIndependent States

Central Asian Co-operationOrganisation

Kyrgyz Republic 39


clause stating the dissolution of the Soviet Union was included in thesubsequent treaty signed in Almaty, Kazakhstan, by all former Soviet republicsexcept the Baltic states and Georgia. Azerbaijan initially refused to ratify thetreaty, but by December 1993 both Georgia and Azerbaijan had joined thecommonwealth. The CIS therefore includes all the former Soviet republicsexcept the Baltic states.

The CIS sought to fill the institutional vacuum resulting from the disintegrationof the Soviet Union. The main organ of the CIS is the Council of the Heads ofState, the supreme body of the organisation; it is convened no less than twice ayear. The Council co-ordinates the co-operation of the executive authorities ofthe states in economic, social and other spheres. The activities of the CIS arelogistically supported by the Executive Committee, which acts as a secretariatand has its seat in Minsk, Belarus. The organisation also has an Inter-parliamentary Assembly. The perception of the CIS and its role variesconsiderably among the participating states. Those that have an alternative toRussian leadership and prospects for economic independence tend to favour aloose framework. States that are reliant on Russia are more inclined to want theCIS to be a close alliance. Belarus, as an exceptional case, follows a policy ofcloser integration with Russia.

The CIS introduced a certain order into post-Soviet affairs, and has served as auseful forum for discussion and "networking" of the former Soviet elites.However, the overall record of the CIS has been disappointing. Integration andlevels of co-operation have lagged behind some initial expectations. Manymembers remain wary that a closer union could become the instrument ofRussia!s post-imperial ambitions. Moreover, Russia has been reluctant andincapable of bearing the costs of a more ambitious reintegration process. TheCIS has also been unable either to prevent or resolve numerous regionalconflicts. The main security component of the CIS is the Collective SecurityTreaty Organisation (CSTO), which developed out of the CST founded in 1992 bysix member states"Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russiaand Tajikistan. The CSTO was formally established in April 2003 with the aim ofproviding a more effective response to issues such as terrorism and drugs-trafficking. A rapid deployment force is based at Kant in the Kyrgyz Republic.

On the economic front, the CIS has fallen short of the expectations of many ofits members. After 13 years of existence, the CIS has not implemented afunctioning customs union or a free-trade area covering all member states. In1995 Belarus, Kazakhstan, the Kyrgyz Republic and Russia formed a CustomsUnion, which was joined by Tajikistan in 1999. This nevertheless proved largelyineffective in boosting trade relations between the five states. A treaty on thesetting up of a Eurasian Economic Community (Eurasec)"which augments thecustoms union with sanction and enforcement powers"was signed by the fivecountries in October 2000, and entered into force in May 2001. Like thecustoms union, however, the organisation has had little success in encouragingcloser trade relations between its members. Armenia, Moldova and Ukrainehave observer status at Eurasec.

Four CIS member states launched a new initiative to broaden trade andeconomic co-operation at the organisation!s summit in Yalta (Ukraine) in 2003.

40 Kyrgyz Republic


Russia, Belarus, Kazakhstan and Ukraine signed an agreement to create a SingleEconomic Space, to be established in three stages. The countries will firstimplement a free trade regime and simplify customs procedures. This will befollowed by the establishment of a customs union and a common competitionpolicy, and the final stage envisages the abolition of all customs controls, as wellas the introduction of freedom of movement for services, capital and labourbetween the four countries. However, the agreement is likely to be difficult toenforce, as it is incompatible with Kazakhstan!s aim of joining the World TradeOrganisation (WTO) before 2005. Ukraine has similar concerns and does notwant any trade deal that would conflict with its bid to join the WTO in 2004.

The European Bank for Reconstruction and Development (EBRD) was set up in1991 to help finance the development of central and eastern Europe after thefall of communism. By contrast with most other multilateral organisationsinvolved in the region, the EBRD!s mandate compelled it to focus on the privatesector, as it was allowed to commit no more than 40% of its funds to public-sector projects. It received an initial capital of Ecu10bn (US$12bn at 1991 averageexchange rates), which was doubled in 1997. The EBRD initially found it difficultto carve out a niche for itself, and was in its early years beset by scandals and aleadership crisis. Although it recovered from these, in 1998 the Russian financialcrisis resulted in heavy losses for the Bank. Russia has been the EBRD!s largestclient, accounting for just over one-fifth of all funding in 1991-2003.

Over the past decade the EBRD has invested substantial sums in the region andhas helped to encourage private-sector investors. The EBRD!s clientele hasgrown from just a handful of transition countries in the early 1990s to 27countries today, with Yugoslavia (now Serbia and Montenegro) added to the listof potential beneficiaries in January 2001. The EBRD has funded hundreds ofprojects, ranging from bank privatisation to road-building. By 2000 it hadrecovered from its 1998 losses, and by the end of that year had disbursed#12.1bn (US$11.5bn). Disbursements rose strongly in 2001-02, at an annualaverage of #2.4bn, falling slightly to #2.1bn in 2003, although this decline wasattributable in large part to the weakening US dollar. The bank!s commitmentshave also risen robustly since 2000, up from #2.67bn in 2000 to #3.72bn in2003. This reflects the increase in the number of viable investments across thetransition region, as well as the bank!s efforts to develop new business. Ifco-financing from other lenders and the private sector is added, in 1991-2003 theEBRD was involved in projects worth a total of #69bn.

Funding of the eight east European EU new member states is to remainconstant following their entry to the EU in May 2004, at around #1bn per year,but most new business will be directed to the CIS and the Balkans. In 2003new commitments to these countries amounted to #2.55bn, up from #2bn in2001, whereas those to the advanced EU accession countries (including Croatia)totalled #1.17bn, down from #1.6bn in 2001.

The Organisation of the Islamic Conference (OIC), an intergovernmentalorganisation with 57 members, was established in 1969 in Morocco. Among thetransition countries, Azerbaijan joined in 1991; Albania, the Kyrgyz Republic,Tajikistan and Turkmenistan in 1992; and Kazakhstan and Uzbekistan in 1995.

European Bank forReconstruction and

Development

Organisation of the IslamicConference

Kyrgyz Republic 41


Bosnia and Hercegovina (BiH) has observer status. The OIC!s aim is to promoteIslamic solidarity by fostering co-operation in the political, economic, social,cultural and scientific fields. The main organ of the OIC is the Conference ofKings and Heads of State and Government (the Islamic Summit Conference),which meets every three years. The activities of the OIC are implemented bythe Conference of Foreign Ministers, which meets annually, and by apermanent General Secretariat.

The OIC aims to facilitate political co-operation among member states, inaddition to mediating in international events in which Muslim communitiesare affected; it has also been a strong supporter of the Palestinian cause.Another OIC aim is the co-ordination and facilitation of economic co-operationamong member states. The OIC supports education in Muslim communitiesand work for the preservation of Islamic cultural heritage. It has a web ofspecialised and affiliated institutions whose activities range from broadcastingto upgrading the standards of public services.

Initially a non-institutionalised multilateral forum for cold war East-Westdialogue, the Conference for Security and Co-operation in Europe (CSCE)gradually expanded in aim and strengthened its organisational structure in the1990s. Established in 1972, the CSCE served for almost 20 years as a convenientand flexible arrangement for easing cold war tensions. After the end of the coldwar the role of the CSCE started to change quickly, and in December 1994 theconference was officially renamed the Organisation for Security andCo-operation in Europe (OSCE). With 55 member states, the OSCE is the onlyinclusive pan-European security organisation. Canada and the US are alsomembers of the organisation.

The OSCE has played a key role in conflict prevention and resolution, as wellas post-conflict reconstruction in Europe. Its activities embrace threedimensions: security, economy, and human rights. The OSCE is engaged inpreventive diplomacy, arms control and confidence-building activities. Itundertakes fact-finding and conciliation missions, and crisis management. TheOSCE is a component of the European security architecture. It is a "regionalarrangement" in the sense of Chapter VIII of the UN Charter, which gives itauthority to try to resolve a conflict in the region before referring it to the UNSecurity Council. Since the early 1990s the OSCE has been heavily involved inthe Balkans and the Transcaucasus.

The activities of the OSCE are performed by a web of specialised agencies. TheHigh Commissioner on National Minorities, based in The Hague, is the primarysource of "early warning", with responsibility for identifying ethnic tensions thatmight endanger peace. The Office for Democratic Institutions and Human Rights(ODIHR), based in Warsaw, focuses on promoting human rights, democracy andthe rule of law. It monitors elections, assists at developing national electoral andlegal institutions, promotes the development of non-governmental organisations(NGOs) and civil society, conducts meetings, seminars and special projects. TheOffice of the Representative on Freedom of the Media, based in Vienna, assessesthe implementation of the member states! commitments concerning freedom ofjournalism, broadcasting and access to information.

Organisation for Security andCo-operation in Europe

42 Kyrgyz Republic


Appendices

Sources of information

The Kyrgyz National Statistical Committee, unlike its counterparts in Uzbekistanor Turkmenistan, publishes detailed economic data regularly on its website(http://nsc.bishkek.su/Eng/Home). The government has introduced internationalaccounting standards, resulting in an improvement in the quality of its dataover the past three years. However, some statistics remain tainted by Soviet-style misrepresentations, and interpretations of economic performance bypoliticians often give as much weight to these as to more accurate figures.

As with the rest of Central Asia, the most complete data come from the IMF.However, the Fund relies on local statisticians and has no mechanism forverification. Figures published by the World Bank are generally less reliable,especially those covering the external sector. Both the European Bank forReconstruction and Development (EBRD) and the Organisation for EconomicCo-operation and Development (OECD) publish some data. The internationalstatistics committee of the Commonwealth of Independent States publishesrelatively timely macroeconomic data, although generally on a month-on-month basis: http://www.unece.org/stats/cisstat/mainpage.htm.

EBRD, Transition Report (annual), available at http://www.ebrd.com

IMF, Statistical Appendix, December 2001; International Financial Statistics

Interfax, CIS Statistical Report

International Institute for Strategic Studies, The Military Balance

UN, Kyrgyzstan National Human Development Report, 1999, 2001 and 2002; FAO,available at http://www.fao.org

World Bank, Global Development Finance

Karen Dawisha and Bruce Parrot (eds), Conflict, Cleavage and Change in CentralAsia and the Caucasus, Cambridge University Press, Cambridge, 1997

Peter Hopkirk, Setting the East Ablaze, Oxford University Press, 2001 (firstpublished 1984)

Lena Jonson and Murad Esenov (eds), Political Islam and Conflicts in Russia andCentral Asia, Sweden, 1999

Ella Maillart, Turkestan Solo, London, 1995 (first published 1934)

Olivier Roy, The New Central Asia, I B Tauris, London, 1999

Business Information Service for the Newly Independent States (BISNIS):http://iepnt1.itaiep.doc.gov/bisnis/bisnis.html

EurasiaNet, a New York-based news service funded by the Soros Foundationwith free weekly e-newsletters: http://www.eurasianet.org

National statistical sources

International statistical sources

Select bibliography andwebsites

Kyrgyz Republic 43


Reference tables

Population1999 2000 2001 2002 2003

Total (m; end-period) 4.8 4.8 4.9 5.0 5.0

By location (% of total)Rural 65.3 65.2 65.1 65.3 65.1Urban 34.7 34.8 34.9 34.7 34.9Births and deaths (per '000 population)Births 21.4 19.7 19.8 20.2 20.9Deaths 6.8 6.9 6.6 7.1 7.1Life expectancy at birth (years)Male 65 65 65 64 65Female 73 72.0 73 72 72


Employment by sector('000; % of total in brackets; annual averages)

1996 1997 1998 1999 2000Industry 183 172 168 159 142

(11.1) (10.2) (9.8) (9.0) (8.0)Construction 58 57 51 45 43

(3.5) (3.4) (3.0) (2.6) (2.5)Agriculture & forestry 779 816 837 924 939

(47.1) (48.3) (49.1) (52.4) (53.1)

Transport & communications 81 79 75 66 63(4.9) (4.7) (4.4) (3.7) (3.6)

Services 551 566 574 570 581(33.4) (33.5) (33.7) (32.3) (32.8)

Total 1,652 1,689 1,705 1,764 1,768

Source: IMF, Kyrgyz Republic�Statistical Appendix, December 2001.

44 Kyrgyz Republic


Consolidated government operations(Som m unless otherwise indicated)

1999 2000 2001 2002 2003Total revenue incl grants 8,091.5 10,029.1 12,539.6 14,411.7 16,214.9 Current revenue 7,725.2 9,256.5 11,860.5 13,458.6 15,616.7 Tax revenue 5,954.0 7,675.5 9,187.9 10,474.7 11,916.5 Income tax 546.2 753.8 960.9 1,083.3 1,208.0 Profit tax 567.6 572.8 993.7 967.6 913.1 Value-added tax 2,253.1 2,976.2 4,221.4 4,793.7 5,526.3 Excise tax 1,252.6 1,518.4 1,102.6 1,082.0 1,164.0 International trade taxes 306.6 275.1 301.4 418.9 422.8 Non-tax revenue 1,771.3 1,581.0 2,672.6 2,983.9 3,700.2 Capital revenue 148.5 23.5 57.1 129.5 136.7Total expenditure 9,312.0 11,308.2 12,255.7 15,188.6 16,895.9 Defence 2,683.9 3,637.1 3,837.5 4,310.6 5,052.0 Education 1,991.3 2,293.0 2,847.6 3,350.2 3,752.7 Healthcare 1,125.3 1,295.9 1,379.0 1,527.3 1,630.0 Social insurance 1,198.1 1,113.9 1,417.1 2,340.5 2,587.8 Housing & utilities 464.7 666.5 800.9 1,131.2 1,193.4 Subsidies to economic sectors 1,108.7 1,342.7 1,423.0 1,894.7 1,840.6Balance -1,220.5 -1,279.1 283.9 -776.9 -681.1 % of GDP -2.5 -2.0 0.4 -1.0 -0.9


Money supply(Som m unless otherwise indicated; end-period)

1999 2000 2001 2002 2003Money supply (M1) 4,203 4,606 5,558 7,677 10,616 % change, year on year 31.0 9.6 20.7 38.1 38.3

Quasi-money 2,418 2,791 2,676 3,346 4,085Money supply (M2) 6,621 7,397 8,234 11,023 14,701 % change, year on year 33.7 11.7 11.3 33.9 33.5

Sources: IMF, International Financial Statistics; Asian Development Bank.

Interest rates(%; average)

1999 2000 2001 2002 2003Treasury-bill rate 47.2 32.3 19.1 10.2 7.2Deposit rate 35.6 18.4 12.5 5.9 5.0

Lending rate 60.9 51.9 37.3 24.8 21.7Lombard rate 51.6 32.8 10.7 6.8 4.0

Source: IMF, International Financial Statistics.

Kyrgyz Republic 45


Gross domestic product1999 2000 2001 2002 2003

Total GDPSom m at current prices 48,744 65,358 73,883 75,240 82,421US$ m at market exchange rate 1,250 1,370 1,527 1,603 1,911Real % change, year on year 3.7 5.0 5.3 -0.5 6.7GDP per headSom at current prices 10,219 13,507 15,101 15,235 16,542US$ at market exchange rate 262 283 312 325 379

Sources: Kyrgyz National Statistical Committee; Economist Intelligence Unit.

Gross domestic product by expenditure(% of total)

1999 2000 2001 2002 2003Private consumption 77.6 65.7 64.8 67.6 68.2Government consumption 19.1 20.0 17.5 18.0 17.6Gross fixed investment 15.7 18.0 16.8 17.2 17.6

Changes in stocks 2.0 1.7 1.0 1.0 1.1Exports of goods & services 42.2 41.8 36.7 39.3 40.9

Imports of goods & services -57.0 -47.6 -37.0 -42.7 -41.1GDP at market pricesa 100.0 100.0 100.0 100.0 100.0

a Totals include net purchases.


Gross domestic product by sector(% of total)

1999 2000 2001 2002 2003Agriculture 34.8 34.2 34.5 35.6 33.5

Manufacturing 21.7 23.3 22.5 20.3 14.6Construction 3.0 3.8 3.8 3.9 3.0Transport & communications 4.8 3.8 2.3 2.3 5

Trade & catering 12.9 12.0 11.9 11.9 15GDP at market prices incl others 100.0 100.0 100.0 100.0 100.0


Prices and earnings(annual averages)

1998 1999 2000 2001 2002Consumer price index (1995=100) 179.9 244.5 290.2 310.3 316.9 % change, year on year 10.5 35.9 18.7 6.9 2.1

Producer price index (1995=100) 167.6 257.6 336.7 377.059 395.2 % change, year on year 7.9 53.7 30.7 12.0 4.8Nominal wagesSom/month 841 1,050 1,180 1,394 1,616 % change, year on year 23.6 24.9 12.4 18.1 15.9US$/month 40.3 26.9 24.7 28.8 34.4Real wages (% change, year on year) 13.1 -11.0 -6.3 11.2 13.9

Sources: IMF, International Financial Statistics; Kyrgyz National Statistical Committee; Economist Intelligence Unit.

46 Kyrgyz Republic


Agricultural production('000 tonnes)

1999 2000 2001 2002 2003Grains 1,617.0 1,549.5 1,803.9 1,952.8 1,670.5 Wheat 1,109.1 1,039.1 1,315.0 1,305.6 1,013.7 Barley 179.8 150.2 280.0 165.8 197.9 Corn 308.4 338.3 198.9 428.1 398.5 Rice 15.1 19.0 8.2 19.0 18.3

Sugarbeet 536.1 449.8 359.5 524.5 812.2Tobacco 29.8 34.6 34.5 8.2 8.7

Potatoes 957.2 1,046.0 1,056.0 1,244.0 1,308.2Vegetables 782.5 889.3 824.0 828.0 678.0Fruit 119.2 187.5 202.2 153.7 134.0

Milk 1,041.8 1,090.5 1,100.0 1,100.0 1,191.8Wool 11.7 11.7 12.0 11.7 11.6

Eggs 10.8 11.7 11.3 n/a n/a


Animal husbandry(end-period; '000 head)

1999 2000 2001 2002 2003Sheep 3,000 3,198 3,104 3,104 3,104

Cattle 911 947 970 988 988Horses 3,336 350 346 350 361

Goats 500 601 640 661 661Pigs 105 101 87 87 87Chickens 2,600 3,064 3,254 3,403 3,648

Source: UN FAO website.

Livestock production('000 tonnes)

1999 2000 2001 2002 2003Beef & veal 95.1 100.6 100.1 98.1 99.0Chicken 4.5 4.6 4.9 4.5 5.1

Horse 20.3 23.7 24.8 24.6 27.5Pork 28.6 23.8 25.7 25.7 21.0

Sheep & goat 46.6 43.1 43.8 45.3 48.5Total 195.2 195.9 199.3 198.3 201.1

Source: UN FAO website.

Kyrgyz Republic 47


Exports of goods fob(US$ m)

1998 1999 2000 2001 2002Agriculture 52.5 56.8 46.9 45.3 56.1Manufacturing 461.1 396.9 457.5 430.8 429.2 Electricity 25.6 52.0 79.8 46.8 22.0 Oil & gas 3.4 1.6 2.7 7.7 36.1 Ferrous metallurgy 2.9 1.6 5.4 6.0 5.2 Non-ferrous metallurgy 221.0 217.2 234.4 247.2 197.6 Chemicals 7.6 6.6 9.0 7.1 8.5 Fuels 1.0 0.3 0.4 0.2 0.3 Machine building 70.1 46.8 53.7 59.1 55.5 Lumber & paper 4.6 0.7 0.9 0.6 1.2 Construction materials 24.0 8.2 8.4 8.4 12.7 Light industry 40.8 32.3 43.9 32.1 64.9 Food industry 54.5 19.1 13.5 12.4 16.9

Total incl others 513.6 453.8 504.5 476.2 485.5


Exports of goods fob(% of total)

1998 1999 2000 2001 2002Agriculture 10.2 12.5 9.3 9.5 11.6

Manufacturing 89.8 87.5 90.7 90.5 88.4 Electricity 5.0 11.5 15.8 9.8 4.5 Oil & gas 0.7 0.4 0.5 1.6 7.4 Ferrous metallurgy 0.6 0.4 1.1 1.3 1.1 Non-ferrous metallurgy 43.0 47.9 46.5 51.9 40.7 Chemicals 1.5 1.5 1.8 1.5 1.7 Fuels 0.2 0.1 0.1 0.0 0.1 Machine building 13.6 10.3 10.6 12.4 11.4 Lumber & paper 0.9 0.2 0.2 0.1 0.2 Construction materials 4.7 1.8 1.7 1.8 2.6 Light industry 7.9 7.1 8.7 6.7 13.4 Food industry 10.6 4.2 2.7 2.6 3.5

Total 100.0 100.0 100.0 100.0 100.0


48 Kyrgyz Republic


Imports of goods cif(US$ m)

1997 1998 1999 2000 2001Agriculture 34.6 18.6 31.4 40.9 14.2Manufacturing 674.7 822.9 568.3 513.2 453.1 Oil & gas 182.9 199.0 118.7 120.8 111.0 Ferrous metallurgy 9.9 21.6 9.5 11.1 9.6 Non-ferrous metallurgy 22.4 30.6 22.9 13.1 24.9 Chemicals 42.1 41.2 24.5 30.5 31.0 Fuels 17.7 34.3 14.2 17.7 13.6 Machine building 154.0 219.3 202.4 150.6 103.4 Lumber & paper 29.2 35.3 19.1 25.6 20.9 Light industry 48.4 60.3 38.6 38.8 32.4 Food industry 83.3 106.6 54.2 46.9 54.7 Medical industry 36.3 27.8 42.3 28.1 26.6Total 709.3 841.5 599.7 554.1 467.2


Imports of goods cif(% of total)

1997 1998 1999 2000 2001Agriculture 4.9 2.2 5.2 7.4 3.0Manufacturing 95.1 97.8 94.8 92.6 97.0 Oil & gas 25.8 23.6 19.8 21.8 23.8 Ferrous metallurgy 1.4 2.6 1.6 2.0 2.1 Non-ferrous metallurgy 3.2 3.6 3.8 2.4 5.3 Chemicals 5.9 4.9 4.1 5.5 6.6 Fuels 2.5 4.1 2.4 3.2 2.9 Machine building 21.7 26.1 33.8 27.2 22.1 Lumber & paper 4.1 4.2 3.2 4.6 4.5 Light industry 6.8 7.2 6.4 7.0 6.9 Food industry 11.7 12.7 9.0 8.5 11.7 Medical industry 5.1 3.3 7.1 5.1 5.7Total 100.0 100.0 100.0 100.0 100.0


Destination of exports(% of total; fob)

1999 2000 2001 2002 2003CIS 40.4 41.2 35.3 34.7 34.6 Russia 15.6 12.9 13.5 16.5 16.7 Kazakhstan 9.9 6.6 8.2 7.6 9.8

Non-CIS 59.6 58.8 64.7 65.3 65.4 Switzerland 4.0 6.8 26.1 19.8 20.1 China 5.6 8.7 4.1 8.5 4.0 Germany 32.7 28.7 19.8 0.4 0.5


Kyrgyz Republic 49


Origin of imports(% of total; cif)

1999 2000 2001 2002 2003CIS 43.2 53.9 54.8 54.4 57.7 Kazakhstan 12.1 10.3 17.5 21.1 23.8 Russia 18.2 23.9 18.2 19.9 24.6 Uzbekistan 8.3 13.5 14.3 10.3 5.5Non-CIS 56.8 46.1 45.2 45.6 42.3 China 6.2 6.7 10.4 10.1 10.8 US 9.0 9.7 5.7 8.1 6.9


Balance of payments, IMF series(US$ m)

1998 1999 2000 2001 2002Goods: exports fob 535.1 462.6 510.9 480.3 498.1Goods: imports fob -755.7 -551.1 -506.4 -441.2 -552.0

Trade balance -220.7 -88.5 4.6 39.1 -53.9Services: exports 62.8 65.0 61.8 80.5 138.4Services: imports -175.7 -154.4 -148.8 -125.1 -145.5

Services balance -112.9 -89.4 -87.0 -44.6 �Income balance -79.1 -74.5 -83.9 -65.5 �

Net transfers 0.2 0.0 40.6 18.4 �Current-account balance -412.5 -252.4 -125.8 -52.6 -85.1Direct investment 86.6 38.3 -6.9 -1.1 �

Portfolio investment -4.3 0.1 -1.3 18.8a �Financial derivatives assets 284.6 220.8 56.9 31.4 �

Other investment 171.7 155.9 39.3 13.6 �Capital & financial account

balance 242.3 276.4 205.0 50.0 �Net errors & omissions 63.4 -3.0 9.8 21.3 7.9

Overall balance -72.7 -49.7 -70.4 -32.0 -11.0Financing 72.8 49.8 70.4 32.0 11.0Change in gross reserves

(- indicates increase) 5.9 -61.3 -21.3 -17.7 -43.0IMF 2.8 19.4 7.4 -2.1 -8.0Exceptional financing 64.1 91.7 84.3 51.8 62.0

a Data from Kyrgyz National Statistical Committee.

Sources: IMF, International Financial Statistics; Kyrgyz National Statistical Committee.

50 Kyrgyz Republic


Balance of payments, national series(US$ m)

1999 2000 2001 2002 2003Goods: exports fob 442.5 510.9 480.3 498.1 590.3Goods: imports fob -531.1 -506.9 -440.4 -552.1 -673.0

Trade balance -88.6 -4.0 39.9 -54.0 -82.7Services: exports 64.9 61.8 80.3 142.0 154.9

Services: imports -154.3 -148.8 -124.7 -147.4 -147.9Services balance -89.4 -87.0 -44.4 -5.4 7.0Income balance -74.0 -83.9 -65.5 -56.2 -61.7Net transfers 68.0 87.4 51.1 88.4 111.7Current-account balance -184.0 -79.5 -18.9 -27.2 -25.6Capital account -15.2 -11.3 -32.0 -27.9 -0.9Direct investment 38.4 -6.9 -1.1 4.8 45.5

Portfolio investment 26.3 24.5 18.8 -17.1 6.0Other investment 156.0 46.7 14.0 83.3 -56.2Financial account 220.7 64.3 31.7 71.0 -24.7

Capital & financial accountbalance 205.5 53.0 -0.3 43.1 -25.6

Net errors & omissions -3.4 10.3 18.6 20.8 58.2

Overall balance 18.1 -16.2 -0.7 29.2 7.0Financing -18.1 -16.2 -0.7 29.2 -7.0 Change in gross reserves

(- indicates increase) -61.2 -21.2 -16.3 -43.8 -50.8 IMF 19.5 7.3 -2.1 -6 -0.9


External debt, World Bank series(US$ m unless otherwise indicated)

1998 1999 2000 2001 2002Total medium- & long-term debt 1,302 1,485 1,510 1,490 1,593 Public medium- & long-term 934 1,134 1,220 1,256 1,394 Private medium- & long-term 368 350 290 234 199 Official creditors 901 1,098 1,184 1,221 � Bilateral 364 441 461 452 � Multilateral 537 657 722 769 � Private creditors 364 441 461 452 �Short-term debt 28 61 129 48 19 Interest arrears 0 11 10 3 10 Official creditors 0 10 9 3 1 Private creditors 0 0 0 0 8Use of IMF credit 175 190 188 179 185Total external debt 1,505 1,736 1,827 1,717 1,797Principal repayments 53 58 97 128 147Interest payments 62 52 76 49 26

Total debt service (paid) 115 110 173 177 173Ratios (%)Total external debt/GDP 91.8 138.9 133.4 112.4 �Debt-service ratioa 18.8 20.5 29.4 31.0 �

a Debt service as a percentage of exports of goods and services.

Sources: World Bank, Global Development Finance; Economist Intelligence Unit.

Kyrgyz Republic 51


Foreign reserves(US$ m; end-period)

1999 2000 2001 2002 2003Total reserves excl gold 229.7 239.1 263.5 288.9 364.6


Exchange rates(Som:US$)

1999 2000 2001 2002 2003Annual average 39.01 47.7 48.38 46.94 43.65End-period 45.43 48.3 47.72 46.09 44.19


Editors: Mark Katzman (editor); Matthew Shinkman (consulting editor)Editorial closing date: July 8th 2004

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

Documents

Kyrgyz Republic - International University of Japan · The Kyrgyz Republic is a unitary presidential republic that declared independence from the Soviet Union in 1991. Until the late