Washington Report on Middle East Affairs, November/December 1996, page 35

Central Asia

The Progress and Problems of Uzbekistan and Kyrgyzstan

by Gordon Feller

Uzbekistan and the Kyrgyz Republic are making good progress in their economic reform and stabilization programs, but have unique problems which sometimes delay progress, says the head of the World Bank department which deals with Central Asian nations.

Yukon Huang, director of the Bank's Russia, Azerbaijan and Central Asia Region department, says Uzbekistan has chosen its own "more gradual" path to a market-based economy and has come up with its own "very special ideas on speed and details" which has markedly slowed its progress on reforms. Huang spoke to a small group of international journalists during the annual meetings of the Bank and the International Monetary Fund (IMF) in Washington.

Despite Uzbekistan's "more crooked path" to reform, he says, the Bank is working closely with the government and hopes to have a number of development projects ready for consideration by the Board of Executive Directors in the coming months. One is a proposed loan of around $175 million for an enterprise development program which may be ready for consideration as early as November.

Early next year, says Huang, the Bank may be ready to move on a loan of between $50 million and $80 million for a large water supply project for the ROC area, followed by a health sector reform project and a farm privatization project. He said the last two projects are "less well advanced" but indicate the "kind of programs" the World Bank is developing with Uzbekistan.

Kyrgyz Republic "Better Than Norm"

As for the Kyrgyz Republic, Huang says it has been "performing better than the norm" among other similar countries in the Bank's programs. So, he says, the Bank is moving ahead vigorously on six or seven projects for Kyrgyzstan. There are two major projects currently underway—a financial sector reform program to help the country reform its banking system and a project to rehabilitate and expand Kyrgyzstan's electric power system.

Huang says recent discussions with Kyrgyz leaders led to a Bank mission this summer to intensify efforts in the agricultural sector and rural development.

The republic's biggest problem, says the World Bank official, is that it has "weaknesses in many of the institutions needed to work with a market economy." For example, he says, there is "no good way for credit to get to private enterprises or the new farming structures which are emerging."

He says the problem became really obvious when a large factory in Bishkek was being privatized and sold off in small portions. "However, new small-scale owners could not find any investment resources" to operate their new businesses, says Huang. The same thing has been happening in rural areas.

The challenge for Kyrgyzstan is to "create sound financial institutions." Until they are created, he said, it is "not advisable" for the Bank or outside investors to "make loans through previous channels because they so often go to the wrong person or are not repaid."

At the same time, says Huang, the Bank and the government have been talking about programs to strengthen the country's employment centers, pension system and social assistance funds.

Huang says Kyrgyzstan has faced a particularly difficult situation in moving into the transformation because its industries, more than in any of the other former Soviet Republics, were so completely dependent on the other republics for raw materials and natural resources. On the other hand, he noted, it has forced the Kyrgyz to move quickly to reform and stabilize their economy. Now, he says, the government recognizes that it has to "restructure the agricultural sector quickly, and that is why Bank programs are particularly strong in projects under preparation in this area."

He says the Kyrgyz government has also recognized that it must make "special efforts" to attract foreign investors.

The Bank is sponsoring an investment conference for Kyrgyzstan in Tokyo late this year in an effort to assist it in drawing outside investment. A Bank-convened consultative conference on Uzbekistan is also being organized for sometime next summer.

Kazakhstan's Trade With Russia Rising

In something of a turn-around, Kazakhstan says its trade with Russia increased 80 percent in the first half of the year compared to the same period last year because of the customs union among Russia, Belarus, Kazakhstan and Kyrgyzstan.

Nigmatzhan Isingarin, Kazakhstan's deputy prime minister who also heads the four countries' integration committee, said Almaty and Moscow have cleared all state debts. But he said Kazakh companies owe Russia about $400 million for electricity, while Russia has not paid more than $400 million for leasing the Baikonur space-launch site.

An Almaty newspaper also says Russia is pressuring Almaty to reduce the amount of hard currency travelers may take with them when traveling abroad from Kazakhstan. Russia's limit is $500 for travelers from its territory, while Kazakhstan's limit is $10,000. Many Russians are scheduling travel from Kazakhstan in order to avoid Russia's hard-currency restrictions.

Kazakhstan Reports Foreign Trade Surplus Up at $1.2 Billion

Kazakhstan closed January-August with a surplus of $1.2 billion on foreign trade of over $5.2 billion, up 41 percent from the same period a year before in figures that include natural gas and electricity. Alia Urazova of the Kazakh Customs Committee told Interfax that the surplus had grown from just $0.4 billion in January-August 1995, thanks in part to exports that rose 21 percent to $3.2 billion. Urazova said Kazakhstan recorded surpluses in trade with both the CIS and the rest of the world, $963.3 million and $286 million respectively. The CIS accounted for 62 percent of overall trade, up from 57 percent in 1995, she said. Exports of metals and metal products amounted to 34 percent of the total, down from 46 percent in 1995. Minerals rose as a share of exports from 27 percent in January-August 1995 to 35 percent in the same period of this year. The share of exports was 12 percent for raw and processed foodstuffs, 9 percent for chemicals and 5 percent for engineering products, compared with 10 percent, 8 percent and 4 percent respectively in 1995.