Kyrgyzstan - Economic analysis of government's policies, investment climate and political risk.

THE

McKEEVER INSTITUTE

OF

ECONOMIC POLICY

ANALYSIS

Kyrgyzstan: Economic Policy Analysis

This site presents an analysis of the Kyrgyzstan's government's economic policies compared to a revised list of 34 economic policies as prepared by student Mrs. Alina Lepeshkina Walker with the McKeever Institute of Economic Policy Analysis (MIEPA)in Spring 2002. To read the analysis scroll through this site. To learn more about the background policies, click here  Introduction and Policy Recommendations

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Alina L. Walker, a Kyrgyzstan native who currently [Spring 2002] lives in Berkeley, has completed a study of her home country government's economic policies as compared to the MIEPA list of policies as outlined above. The study on Kyrgyzstan is shown below. The ratings herein are based on the following rating scale:

RATING SCALE

5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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Kyrgyzstan

Comparison of Kyrgyzstan's economic policies to MIEPA criteria as prepared by native student of Kyrgyzstan, Mrs. Alina L. Walker, studying in the US in the Spring of 2002.

RATING SUMMARY

POLICY NUMBER      RAW SCORE   ADJUSTED SCORE    POSSIBLE   PERCENTAGE

        1               1.0           3.0             15.0        20 %

        2               3.0           9.0             15.0        60

        3               1.0           3.0             15.0        20

        4               2.0           6.0             15.0        40

        5               2.0           6.0             15.0        40

        6               2.0           6.0             15.0        40

        7               2.0           6.0             15.0        40

        8               2.0           6.0             15.0        40

        9               2.0           6.0             15.0        40

        10              2.0           6.0             15.0        40

        11              2.0           6.0             15.0        40

        12              2.0           4.0             10.0        40

        13              3.0           6.0             10.0        60

        14              2.0           4.0             10.0        40

        15              2.0           4.0             10.0        40

        16              3.0           6.0             10.0        60

        17              1.0           2.0             10.0        20

        18              1.0           2.0             10.0        20

        19              4.0           8.0             10.0        80

        20              1.0           2.0             10.0        20

        21              1.0           2.0             10.0        20

        22              4.0           8.0             10.0        80

        23              2.0           8.0             10.0        80

        24              1.0           2.0             10.0        20

        25              2.0           4.0             10.0        40

        26              2.0           4.0             10.0        40

        27              1.0           2.0             10.0        20

        28              2.0           4.0             10.0        40

        29              1.0           1.0              5.0        20 

        30              2.0           2.0              5.0        40

        31              1.0           1.0              5.0        20

        32              2.0           2.0              5.0        40

        33              3.0           3.0              5.0        60

        34              1.0           1.0              5.0        20

   TOTAL               65.0         145.0            375.0        38.7%
                      =====        ======            =====        =====

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INDIVIDUAL POLICIES

1. Freedom from internal control 1.0

Like many socio-economic variables inherited from Soviet time s, in Kyrgyzstan there is a tremendous emphasis placed on controlling citizen's mobility, thoughts and attitudes. Such control applies to every citizen of the country -- from a bus driver to journalists and even presidential candidates. Every citizen of Kyrgyzstan is required by law to have a registered place of residency called propiska. A Propiska is stamped permanently in one's passport. Every time a person changes the address he is required to reregister with the local authorities. A local valid propiska is one of the main requirements to qualify for a job. Every citizen is also required to carry his passport everywhere he goes and can randomly be stopped on the street and asked for documents. During presidential elections in 2000, President Askar Akaev's victory raises a lot of questions. One of the facts is that 90% of Kyrgyz television stations and 70% of print media were devoted to Akaev's campaign making it very difficult for other candidates to get their message across. One of the most popular candidates was arrested right before the elections and shortly after. Kyrgyzstan, which was considered one of the most committed to market economics and multi-party democracy now is responsible for arbitrary arrests and a crackdown on the independent media.

Sources: Storing the rot. From The Economist print edition May 2nd, 2002 And the winner isÖ from the Economist print Edition Nov 2nd, 2000 Personal experience

2. Freedom of speech 3.0

Most of the official state control over the media, present during Soviet times, was officially abolished shortly after Kyrgyzstan's Declaration of Independence in 1991. Very little legislation has been passed since then to govern the activities of the media. The legislation that does exist is generally vaguely worded, duplicative and unenforceable. This lack of clear guidelines has led to a protracted struggle to define the rights and responsibility of the media. For a little less that a decade Kyrgyz Press was considered relatively independent compared to others former Soviet Central Asian Republics. But hopes for a continued improvement in press freedom in Kyrgyzstan were dashed in 2000 by the governmentís repeated attempts to prevent the media from reporting freely on the presidential elections

Sources: The Economist print edition. February 15, 2001 www.freemedia.at/wpfr/kyrgyzstan.html date of access 2/2/02

3. Effective, fair police force 1.0

In the current situation, the police force of Kyrgyzstan is neither effective nor fair. The Police forces of Kyrgyzstan are very corrupt despite all the efforts from the government to reform them. If you own a business, you start with finding the right person in the police who will protect you, or be your "krysha" for a certain pay. No business can operate without krysha and business owners find it easier to regularly pay one person or constantly worry about what might happen to your property tomorrow. Unlawful actions of police officers can be seen on smaller scale as well. About every third traffic stop usually end with a bribe. There is a saying "What can not be bought for money can be bought for a lot of money". If certainly applies to Kyrgyz judicial system. The judicial system is in such chaos -- it is a revolving door for those with money -- after committing a crime, they are back out on the street in a very short time. The reason for such poor condition of the police force is first of all financial. The combination of extremely poor pay in law enforcement and the great opportunity to extort money from those willing to pay is essentially too good to pass up.

Source: Personal observation

4. Private property 2.0

There is a philosophical difference between western and traditionally soviet points of view on private property. In the "soviet" mind set the land should belong to the Government who has better idea how to take care of it. In addition, the traditional nomadic culture of Kyrgyzstan adds to the ignorance of the importance of private property. The traditional Kyrgyz people feel more attached to the land in a bigger sense rather than to a single plot of land designated as private property. Therefore developing the new system to administer private property is not a high priority for Kyrgyzstan. The protection of property rights is now just developing. Despite extensive privatization of housing and significant progress in privatization of enterprises, real estate markets in urban areas remain underdeveloped. This largely reflects the weak macro-economic situation in the country, but is made worse by inappropriate and complicated transaction procedures, lack of supporting institutional infrastructure, and in many cases lack of clarity of title. Foreign and domestic private entities may own business enterprises and engage in a broad range of commercial activities. Foreign entities are expressly forbidden from owning land (although renting/leasing of land is usually allowed). People of Kyrgyzstan generally do not understand the concept of intellectual property. Pirate copying is widely spread -- for profit as much as out of ignorance.

Source: U.S. Department of State FY 2001 Country Commercial Guide: Kyrgyzstan Personal observation

5. Commercial banks 2.0

Banking system of Kyrgyzstan is weak and undercapitalized. There are currently 23 operating banks with 151 branches. Real interest rates are high and long-term credit is unavailable. Most banks earn profit primarily from foreign exchange operations and trading of treasury bills. People of Kyrgyzstan do not have much trust in Kyrgyz banks for there were many cases in the past of banks simply disappearing. Therefore very few people maintain personal accounts with bank with the majority keeping their cash under the mattress. Banking laws in Kyrgyzstan do not overtly discriminate against foreign banks, which are afforded the same treatment as Kyrgyz banks. However, the structure of banking regulations place significant disadvantage of banks that do not meet the National Bank of Kyrgyzstan's requirement for minimum capital.

Source: U.S. Department of State FY 2001 Country Commercial Guide: Kyrgyzstan Personal observation

6. Communications system 2.0

Inadequacy of Kyrgyzstanís communication system is the result of itís being low priority for Soviet authorities to develop such infrastructure. In 1994 Kyrgyzstan received a loan for US $8 million to upgrade its telecommunication services, especially in the mountainous areas.

Telephones - main lines in use: 351,000 (1997)

Telephones - mobile cellular: NA

Telephone system: general assessment: poorly developed; about 100,000 unsatisfied applications for household telephones

domestic: principally microwave radio relay; one cellular provider, probably limited to Bishkek region

international: connections with other CIS countries by landline or microwave radio relay and with other countries by leased connections with Moscow international gateway switch and by satellite; satellite earth stations - 1 Intersputnik and 1 Intelsat; connected internationally by the Trans-Asia-Europe (TAE) fiber-optic line

Radio broadcast stations: AM 12 (plus 10 repeater stations), FM 14, short-wave 2 (1998)

Radios: 520,000 (1997)

Television broadcast stations: NA (repeater stations throughout the country relay programs from Russia, Uzbekistan, Kazakhstan, and Turkey) (1997)

Televisions: 210,000 (1997)

Internet country code: .kg

Internet Service Providers (ISPs): NA

Internet users: 10,000 (2000)

Sources: CIA - The World Factbook 2001 - Kyrgyzstan Area handbook series. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan country studies. First edition 1997

7. Transportation 2.0

All of the means of transportation in Kyrgyzstan were built during Soviet times and have not received proper attention since the 1980s. Highways and airport runways (except for Bishkek airport that is being totally rebuild by the antiterrorism coalition) desperately need repairs which for the lack of financing is happening very slowly.

Railways: Total: 370 km in common carrier service; does not include industrial lines broad gauge: 370 km 1.520-m gauge (1990)

Highways: Total: 18,500 km (including 140 km of expressways) paved: 16,854 km (these roads are said to be hard-surfaced, and include, in addition to conventionally paved roads, some that are surfaced with gravel or other coarse aggregate, making them trafficable in all weather) unpaved: 1,646 km (these roads are made of unstabilized earth and are difficult to negotiate in wet weather) (1996)

Waterways: 600 km (1990)

Pipelines: Natural gas 200 km

Ports and harbors: Balykchy (Ysyk-Kol or Rybach'ye)

Airports: 50 (2000 est.)

Airports - with paved runways: Total: 4

Airports - with unpaved runways: Total: 46

Sources: CIA - The World Fact book 2001 - Kyrgyzstan Area handbook series. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan country studies. First edition 1997

8. Education 2.0

After declaring its independence, Kyrgyzstan continued the legacy of Soviet-era education system the main idea of which was to educate all of its citizens. General education in Kyrgyzstan is financed from district budgets, and the college prep and higher education programs are financed by the national budget. State sponsored education is made available for those with qualifying academic record. Admissions policies are skewed towards applicants of Kyrgyz ethnic descend putting Russian applicants at an extreme disadvantage. In the past decade a few private universities arisen. Typically the tuition of these private institutions is out of reach of average family. But even though the education is available to most, the quality of it is low. One of the most prevailing reasons is low pay for instructors. Teachers educated during soviet times usually have the knowledge but lack motivation to effectively impart that knowledge to their students. Currently there is a bran-drain where brightest people are trying to leave the country.

Sources: Area handbook series. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan country studies. First edition 1997 Personal experience

9. Social Mobility 2.0

Prior to 1991, when Kyrgyzstan became an independent state, social mobility was relatively high. Any qualified candidate, regardless of social and economic status, was able to work his way up, both in education and in work. The factor of being promoted because of close relationship with a "right" person existed, but Soviet Government tried hard to create equal opportunity atmosphere in the country. After becoming independent, Kyrgyz institutions started to pay closer attention to one's ethnicity and family connections. It became much harder for a person of Russian decent get into a prestigious school or get a desirable position at work.

Source: Personal experience

10. Freedom from outside control 2.0

Kyrgyzstan has been an independent country since 1991 and during the past eleven years was free from direct outside control. However, Kyrgyzstan's economic and political situation is such that the country strongly depends on help from the outsiders such as Russia, Turkey, US and other western countries. Such dependency suggests that Kyrgyzstan has to take into consideration these countries opinions in making their decisions (regarding both internal and external matters). Sometimes Kyrgyzstan gets into a particularly awkward position when it has satisfy opposite desires of two beneficiaries.

Sources: Central Asian News Digest http://www.centrasia.ru date accessed March 31st, 2002 Personal observation

11. Foreign currency transactions 2.0

Since most kyrgyz citizens do not have a great faith in kyrgyz currency som, it is common among people to keep one's saving in a safe place at home in US dollars. There are a lot licensed shops that do foreign currency exchange so buying and selling dollars is not a problem for people. But the State Law requires all the transactions within the country to be maid in Kyrgyz soms and that law is being enforced. One can still use foreign currency to obtain goods at a market but such activity can cause some trouble.

Sources: Personal Experience

12. Border Control 2.0

In 1994 Kyrgyzstan signed an agreement permitting border troops of The Russian Army to take over the task of guarding Kyrgyzstan's border with China. Any Chinese citizen entering Kyrgyzstan is required to have an entry visa which makes control over the border easier. Kyrgyzstan's borders with Uzbekistan and Tajikistan were not guarded but the recent events and the war against terrorism measures to strengthen the border have been taken. Border with Kazakhstan is the friendliest border of all. Not every car traveling from Kazakhstan to Kyrgyzstan gets stopped and checked therefore there isn't much control over who and what is getting in and out of the country. Kyrgyzstan's biggest border problem is drug trafficking. Opium, illegally grown in Kyrgyzstan, through an emerging distribution chain moves to Moscow, then to Poland, from where it is transferred to Europe and the United States. Only about 20 percent of the drug trafficking is being intercepted within the country and at the borders.

Sources: Area handbook series. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan country studies. First edition 1997

13. Currency 3.0

In May 1993, two years after Kyrgyzstan's Declaration of Independence, Kyrgyz currency som was introduced. In the first couple years of its existence som was more stable than currencies of other Central Asian republics. But lately the currency has lost its stability. In 1998 the exchange rate was 18 soms to 1 US Dollar. As of March 28, 2002 the exchange rate was US $1 to 48 soms. Som has more symbolic than economic value. It is still possible to pay for goods and services in Kyrgyzstan in US dollars, in fact people prefer to get dollars rather than soms whenever they can.

Sources: History of Kyrgyzstan. Manas Publishers, 1998 Personal experience

14. Cultural, language homogeneity 2.0

In 1993 the population of Kyrgyzstan was estimated of 4.46 million, of whom 56.5 percent were ethnic Kyrgyz, 18.8 percent were Russians, 12.9 percent were Uzbeks, 2.1 percent were Ukranians, and 1.0 percent were Germans. The rest of the population, which is about 8.7 percent, was composed of about 80 other nationalities. Religious affiliations of the country are mostly Sunni Muslim with Christian minority. Russians, the second largest ethnic group in Kyrgyzstan and Kyrgyz, even though sharing not much in common in their language and culture, co-existed peacefully since 1936, when Kyrgyzstan became Kyrgyz Soviet Socialist Republic. Nevertheless, racial preference has been present at least in Bishkek and all over Kyrgyzstan to a lesser degree towards ethnic Kyrgyz. They are given first choice in a very competitive job market. This fact I believe does not increase country's strength in the world economy. In 1990 the Uzbeks, almost the entire population of which (about 552,000) live in the southern part of the country were involved in violent clashes with Kyrgyz as deep-seated interracial problems surfaced with the relaxation of Soviet rule. The potential for another ethnic conflict is ever present.

Sources: The encyclopedia of World Geography, Barns & Noble, Inc. 2000 http:/lcweb2.loc.gov date of access 1/31/02

15. Political Effectiveness 2.0

There are so many examples that can be talked about when one is trying to figure out how effective Kyrgyzstan's politics are. But doe to the current situation in the world, one example especially draws attention.

Kyrgyzstan was one of the first Central Asian countries to welcome American and ally's troops to its land, which really upset Russia. This agreement brought Kyrgyzstan over US $4 million which could greatly benefit the country. Also Kyrgyz Government hoped that if the country takes an active part in US led war on terrorism, America will close it's eyes on huge violations of human right in Kyrgyzstan. Now it's becoming apparent that even though Kyrgyzstan is a useful ally in the war, principles are still principles, and is Kyrgyz government mistreats its citizens, it has to be brought up by the western community. Realizing that having such witnesses in their back yard, Kyrgyz Government is now trying to make friends with Russia again and using mass media to get rid of (or at least minimize) the foreigner's presence in the country.

Sources: Central Asian News Digest http://www.centrasia.ru date accessed March 31st, 2002

16. Institutional Stability 3.0

Kyrgyzstan as a country is just a decade old, so it's institutional stability is very relative. Nevertheless, the facts indicate such stability. Country's President Askar Akaev, for better of for worth, has been leading the country untiringly for ten years. Political parties represented in the government stayed pretty much the same over the years as well. Most of country's enterprises that were privatized are still ran by the government, so for them nothing has really changed. But such stability does not greatly benefit the economy -- most areas could use some changes and some money as well.

Source Personal opinion

17. Honest Government 1.0

Government is not a standalone institution but rather a reflection of the society at large. During this transitional time for Kyrgyzstan, where the resources are extremely scarce, the only way to survive is to take what's ava ilable. Their unique position as Government members allows for greater "taking" opportunity. During Soviet times the fear of being caught and prosecuted was bigger then the desire to add to one's financial stability, but now everybody knows that if you don't take what's there, somebody else will, and that's just the way it is. It is hard to be honest when your family is hungry, but once the family is fed, the habit of taking does not go away. Unless extreme measures are taken, Kyrgyzstan's prosperity seems like a very unlikely possibility. Not only politicians, but police, post office employees and tax collectors are viewed as corrupt and uncaring. Post office staff and other local officials are responsible for distributing pensions and other social assistance benefits are described in local papers as corrupt and disdainful of poor people.

Source: Personal experience

18. Common Laws 1.0

Kyrgyzstan, as most of the countries of the world, has a set of laws designed to protect every citizen of the state. In practice, however, only the "worthy" ones are being protected. How effective and common the laws are depends on how many and what kind of right people one knows. Laws on paper clearly state one thing, but it can turn out that they mean something totally different. With widespread corruption in legal system the quality of legal help one can get very often depends on how much one is willing to pay -- to the lawyer himself or to judges as bribes. One's case may never even make it to court but disappear along with hundreds of others in official's desks. According to recent statistics, over 12,000 people arrested in Kyrgyzstan in 2000, almost 6,000 were later released. So they were ether arrested illegally, or let go illegally. Murderers, mobs and other "high paid" felons are not being prosecuted, but those who commit petty crimes (stealing materials worth 600 som) are making the countrie's statistics on arrests and convictions look better by being sent to jail (which by the way costs the taxpayers thousands more than stolen 600 som).

Source: Newspaper Delo N, #14 April 17, 2002 Personal experience

19. Central Bank 4.0

The financial sector of Kyrgyzstan consists of the National Bank of Kyrgyzstan (NBK), three large commercial, nine small commercial banks and the Savings Bank (SB). The system emerged from the institutions that operated under the previous regime. The laws that currently govern the banking system were passed in June 1991, and consist of the "Law on State Bank" and the "Law on Banks and Banking. In February 1992, the State Bank was replaced by NBK, which inherited the legal rights and responsibilities of the State Bank and acts as the central bank of the Republic. NBK is responsible for all monetary affairs and the banking sector, acts as the fiscal agent of the Government, and manages relations with other CIS and foreign central banks. It extends credit to the commercial banks, holds their reserves, and provides clearing services for interbank transactions. Even though The National Bank is not ran by the Government, Bank's five board members and the Chairman are nominated by the recommendation of the country's President. Kyrgyz National Bank is still dependant on the Government.

Sources: Vecherny Bishkek Print Edition, January 15, 2001

20. Domestic budget management 1.0

It seems like there is one thing that members of Kyrgyz Government agree upon. That is that a new Mercedes Benz is a sure indicator of success. The big question is how to obtain such a thing for many members of the government. This question troubles citizens of the country when they observe the wealth displayed by some in the government, when the numbers scream that the country is in financial trouble. Overall budget deficit including grants in 1999 was -2.5% of GDP. The Kyrgyz economy has earned more than $4.5 million in landing fees and through selling fuel and food to the U.S. troops military at Manas airport, 30 kilometers (19 miles) from the Kyrgyz capital, Bishkek. These money are still to be spent.

Source: International Monetary Fund, Government Finance Statistics Yearbook and data files, and World Bank and OECD GDP estimates.

21. Government debt 1.0

Since the break-up of the Soviet Union in 1991, the Kyrgyz Republic has accumulated a large portfolio of external liabilities, which as of the end of 1998 totaled an estimated US$1.5 billion or 96 percent of GDP. Servicing this debt has been difficult but, until recently, manageable partly due to a number of short-term debt rollovers granted by Russia and Turkey. Debt service levels have so far been relatively low given a large amount of concessional external financing that came with long grace periods. The debt service burden, however, is expected to surge substantially in 2000-2005, when practically all non-concessional debt (equivalent to 50 percent of the total) will need to be repaid and grace periods for concessional loans end. It was estimated by the World Bank that budget debt service to revenue ratio to be in the 40-50 percent range after the year 2000.

At current deficit levels there is little doubt that Kyrgyzstan's debt is developing in an explosive way, without or with rescheduling. The debt-output ratio quadrupled in the period 1993-98, to reach a very high level of around 96 percent in 1998.

Sources: Document of The World Bank Report No. 20644-KG Kyrgyz Republic Fiscal Sustainability Study June 2000 http://www-wds.worldbank.org/servlet/WDSServlet?pcont=details&eid=000094946_0008040538154

22. Economic statistics 4.0

Understanding the importance and mutual benefits of the cooperation between providers of statistical information and its users, on May 22, 2001 the government of Kyrgyzstan founded the Statistical Society of Kyrgyz Republic. The Society is a non-profit non-government organization operated by the Kyrgyz and international specialists in areas of statistics and economics. The goal of this Society is to help state statistical institution in improving the databases and increasing their professional potential. A lot of effort is being put into working with colleges and universities, revising textbooks using all the information available. The Government's policy on statistical information is to make sure that the data presented is correct, verifiable and available to everybody inside and outside the country. A lot of work is being is being done towards establishing and strengthening the relationships with foreign statistical agencies.

Sources: The official site of Kyrgyz Government www.gov.kg

23. Protection of public health and safety 2.0

During Soviet times Kyrgyzstan belonged to one state-wide health system that insured an adequate free health care for every citizen of the Soviet Union. Kyrgyzsnat's post-Soviet financial crisis has significantly reduced government's financial support of such health system. The current funding crisis has precipitated a series of changes that impact on all levels of the health system, many of which have reduced the quality of the service provided and seek to undermine both the health workers' and general public's confidence in the system. It has been noted that the population's health seeking behavior has changed in the last few years with people visiting health facilities less often, later in the illness, or not at all. The health system is collapsing due to lack of drugs and supplies, particularly at the primary health care level. In the current situation most patients must provide bedding, food, drugs and syringes for themselves and cover the costs of transport. This collapse is further exacerbated by the use of outmoded treatment regimes, which often include polypharmacy and long periods of unnecessary hospitalization.

One of the biggest health problems in Kyrgyzstan is tuberculosis. The number of cases is steadily growing -- from 15,032 cases per 100,000 population in 1998 to 17,780 cases per 100,000 in 2000. Ongoing tuberculosis prevention campaign is not bringing noticeable results partly due to lack of finances.

Sources: Document of The World Bank Report No. 15181-KG STAFF APPRAISAL REPORT KYRGYZ REPUBLIC HEALTH SECTOR REFORM PROJECT APRIL 22. 1996 http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1996/04/22/000009265_3961022110355/Rendered/INDEX/multi0page.txt Date visited

24. High wage policies 1.0

I believe there is no High Wage Policy in Kyrgyzstan. In fact, the standard of living for an average citizen suggests the "As Low As Possible Wage Policy'. GNI per capita in 1999 was recorded at US $300 or US $25 per month. This income can not provide for decent living which includes being able to pay for a place to live, cover all the utility bills (with utility prices climbing up every month), enough food and some necessary clothing and occasional medical expenses. In the Kyrgyz Republic, poor people's wellbeing seems to be spiraling downward, and many face increasingly desperate situations. In their daily struggles they see the state as more of an obstacle than an ally, and they are forced to rely heavily on family, relatives, and friends. These social networks, however, also have limited resources and are showing signs of strain. By most recent estimate available, percent of the population living below national poverty line is 52%. There are no laws enforcing a minimum wage for skilled labor (teachers, doctors, engineers) therefore a lot of highly trained professionals are working better paid jobs waiting the tables at restaurants or as bodyguards to local businessmen. Such waste of brainpower can not be beneficial for the country's economy.

Source: World Development Indicators database, July 2000 The World Bank's Voices of the Poor: From Many Lands Personal experience

25. Environmental Protection 2.0

Compared to its Central Asia neighbors, Kyrgyzstan has been spared a great deal of huge environmental problems. During Soviet times no large scale neither cotton production nor heavy industry was located in the country. Nevertheless, today Kyrgyzstan faces serious problems because of pollution and insufficient use of water resources, improper agricultural practices and land degradation. Realizing the danger of such problems if they continue on growing, Kyrgyzstan's government designed the National Environmental Action Plan. There are two agencies working on the environmental issues -- Goskompriroda and Hydrometeorological Administration. But the lack of money to finance any environmental protection programs, lack of legislature and poor coordination of any such activities pose great obstacles. Environmental problems in Kyrgyzstan just keep growing.

http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+kg0020) accessed 2/24/02

26. Strong Army 2.0

In September 1991, immediately after the Declaration of Independence, Kyrgyzstan began to build a small armed force which was based on the understanding that Russia will remain chief guarantor of the country's security. The only operational part of Kyrgyz armed forces is 12,000 troops of ground force, which is crippled by a tight budget, corruption and lack of political direction. Two incursions by Islamic Movement of Uzbekistan, IMU, fighters into the Batken province in 1999 and 2000 proved the Kyrgyz military ill-prepared to protect the country against attack. Military expenditures in 1999 totaled $12 million or 1% of GDP.

Sources: http://www.cia.gov/cia/publications/factbook/ http://lists.partners-intl.net/pipermail/women-in-war/2001-March/000308.html

27. Foreign Trade Impact 1.0 At present, Kyrgyzstan carries out trade with more than 100 countries of the world. The projected positive changes in economy and in the establishment of trade relations with many countries have allowed to expand the range and structure of foreign relations. Principal exports of Kyrgyzstan are wool, cotton and hides, electric power, electronic products, ferrous and nonferrous metals, food products and shoes. During January-July 2001, Kyrygz exports totaled US $275.5 million and imports totaled US $247.1 million. In 2000, exports measured US $511 million and imports measured US $559 million, foreign trade totaling US $1.07 billion. Kyrgyzstanís main trade partner in 2000 was Germany, which accounted for 28 percent of foreign trade followed by Uzbekistan (19%), Russia (12%), China (9.3%), Switzerland (7.4%), and Kazakhstan (6.6%). > a personal experience it seems like the impact of Foreign Trade on the country is huge. About 90% of consumer goods used in the country are imported.

The country's nominal GDP in 2000 was US $1.3 about 82% of which was generated by foreign trade.

Sources: Kyrgyzstan's Ministry of External Trade and Industry http:/www.mvtp.kg accessed Feb 20th, 2002 http://eng.gateway.kg/economy accessed Feb 20th, 2002 accessed Feb 20th, 2002 http://www.bisnis.doc.gov accessed Feb 20th, 2002 http://www.worldbank.org accessed Feb 20th, 2002

28. Protection of foreign currency earning enterprises 2.0

Although it is believed that protecting the foreign currency earning enterprises is one of high priorities of the government policy, in reality the government assists the development of such enterprises in a limited number of ways. In 1998 Kyrgyzstan joined the World Trade Organization which gave the country access to new export markets and provided access to the system of appeals in the event of trade disputes. Kyrgyzstan is also a member of Customs Union along with Russia, Kazakhstan, Belarus and has bilateral agreements with a number of Eastern and Western countries. Kyrgyzstan also has well-educated productive low-cost labor force which attracts export-oriented foreign investors. The Free Economic Zones of the Kyrgyz Republic were established to encourage growth, investment, exports and employment, and several zones were originally set up. What this program is lacking is the ability of the Kyrgyz Government to protect the foreign currency earning enterprises from corrupted member of the government. Along with a lot of opportunities for creation and growth of export-oriented enterprises there also are a lot of obstacles caused by greedy officials.

Sources: World Bank's Kyrgyz Republic -- Private sector review in the transitional era http:/www.worldbank.org/html/extdr/regions.htm

29. Management of foreign currency budget 1.0

According to the results published by the World Bank, total export in Kyrgyzstan in 2001 measured US $511 million and imports measured US $559 million, bringing the Net Export to deficit of US $48 million.

Sources: Kyrgyzstan -- Country at a glance by The World Bank http://www.worldbank.org/data/countrydata/aag/kgz_aag.pdf

30. Layers of collective actions 2.0

Kyrgyzstan is administratively divided into 7 oblastar -- 6 regions and the city of Bishkek (the capital of Kyrgyzstan). Each province has a local elected legislature, but the real power belongs to the province governor who is appointed by the President. In each province city councils, school boards and such are elected bodies but they are heavily dependent financially on the Federal Government. The fact that there is not a lot of autonomy at the local level suits the Government, which fears to let the regions function more or less independently because of the threat of radical insurgents of Muslim extremists. Since Kyrgyzstan's Declaration of Independence in 1991 Kyrgyzstan still has not developed a strong sense of nationhood. People are having hard time identifying themselves with the country of Kyrgyzstan therefore there is not much patriotic zeal for volunteer work. In comparison to the Soviet times when the citizens were proud to be part of a great nation and used their free time for country's benefits (an example would be subbotnik -- city's clean-up days where every citizen participated), today's Kyrgyzstani do not possess such patriotic feelings.

Sources: CIA - The World Factbook 2001 - Kyrgyzstan Personal experience

31. Pro Business Climate 1.0

The transition from the centrally planed economy of the Soviet Union into the market economy of a newly independent country has been hard for Kyrgyzstan. The Kyrgyz Government, strongly committed to the development of the market economy in the country designed a plan for reform. But the lack of a legislative framework developed specifically for the private sector has led to excessive bureaucracy and wide spread corruption which poses considerable obstacles for established businesses and potential entrepreneurs. A process of registration of a new enterprise may take up to three months, requires excessive documentation and then is dependent on the support of local administration. The establishment of a business remains a daunting task due to the lack of facilities and the numerous requirements for permits for almost every action. There is virtually no market for commercial office space. Enterprises must rent from the state or are given use of space by a governmental agency. Leases tend to be short term (usually not more than one year). Virtually everything needed to function is available only at the discretion of the state. New enterprises have little access to credit and only at relatively unfavorable terms. Competitive, commercial banking is still non-existent. The allocation of credit in Kyrgyzstan has been primarily the allocation of low cost refinance credit from the National Bank of Kyrgyzstan and the granting of credits by commercial banks to the State Owned Enterprises which are the banks' main shareholders. The result is that for small and medium sized private enterprise, there is practically no access to credit.

Sources: Kyrgyzstan -- the transition to a market economy The World Bank Group country study Personal experience

32. Government Enterprises 2.0

Since 1936 when Kyrgyzstan entered the Soviet Union as Kyrgyz Soviet Socialist Republic, all enterprises located within Kyrgyz borders were owned and run by the Soviet Government. With the break of the Soviet Union and Kyrgyzstan's Declaration of Independence in 1991 the country started one of the most aggressive programs of privatization in Central Asia. In December 1991 The Privatization and Denationalization Law was adapted and State Property Fund was appointed as the agency to design and implement the privatization program. By the end of 1993, about 4,450 state enterprises, including 33 percent of total fixed enterprise assets, were fully or partially privatized. By mid-1994, nearly all services and 82 percent of assets in trade enterprises, 40 percent of assets in industry, and 68 percent of construction assets were in private hands. But in reality this number did not change the economic situation of the country. Privatized enterprises (many of which were industrial enterprises and were considered strategically important) became joint' stock companies with a part of the shares distributed among the workers but the biggest part still owned by the Federal Government. This continues to be huge burden for the federal budget.

Source: http:/lcweb2.loc.gov accessed Feb 2nd, 2002

33. International Security Agreements 3.0

In 1996 total armed forces of Kyrgyzstan consisted of 12,000 ground troops; 4,000 air and air defense troops and only 2,000 border guard troops. Newly independent Kyrgyzstan, on one side bordering states suspected of harboring Islamic extremists and on the other side China with their on-going border disputes has continuously requested aid guarding its borders. In 1994 Kyrgyzstan signed an agreement permitting border troops of The Russian Army to take over the task of guarding Kyrgyzstan's border with China. In the summer of 1999 Kyrgyz border troops guarding the border with Uzbekistan clashed with a group of Islamic extremists who were trying to take over a region of the country for the militant's training and narcotics trade. This event forced the presidents of Kazakhstan, Kyrgyzstan, Tajikistan, Armenia, Belarus and Russia to think of closer military and political integration and design an extended regional security plan. Kyrgyzstan's promise to participate in The United States of America's led war on terrorism gave the country an opportunity to contribute to anti-terrorism campaign and at the same time hopefully strengthen its financial situation by attracting some aid money into the country. As of January 2002 3,000 American and allied troops are station in Kyrgyzstan and are supposed to stay there for at least one year, according to the signed agreement.

Sources: The Yankees are coming. The Economist Jan 17th, 2002 http/lcweb2.loc.gov/frd/cs accessed Feb 10th, 2002

34. Protection of domestic enterprises from government mandated costs 1.0

Taxation of companies

VAT 20 percent monthly or quarterly

Profit Tax 30 percent monthly

Road Fund Tax 0.8 percent of the cost of goods and services sold

Emergency fund tax 1.5 percent monthly

Fee for municipal garbage removal

Social Fund 31 percent monthly or minimum wage multiplied by the number of employees

Employer's Share 7 percent deducted from the employee's wage

Income Tax up to 35 percent

Agricultural Land Tax

Neighboring Kazakhstan has a very comparable tax law with the only considerable difference being the absence of VAT on sales of textile, sewing services, leather processing services and shoes production for residents of Kazakhstan for sales within Kazakhstan. That measure represents a stimulus for the domestic light industry development. Kyrgyzstan's domestic light industry could certainly benefit from such measure as well.

Sources http/www.state.gov/www/about_state/business accessed Feb 9th, 2002 http://www.kazakhstan-gateway.org/businessandfinance/taxation.htm


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Introduction and Policy Recommendations

Winning Essays: There Are Alternatives Project (TAA)

Essay: Balanced Trade: Toward the Future of Economics

Moral Economics

McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS

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