Accessibility links

Central Asia/Transcaucasus: IMF Says Region Won't Escape Economic Turmoil

  • Michael Lelyveld

Boston, 15 October 1998 (RFE/RL) -- Can the Transcaucasus and Central Asia escape severe damage from Russia's economic crisis? Revised figures from the International Monetary Fund (IMF) suggest that they will not.

In the latest edition of its "World Economic Outlook," the IMF projected that the region will continue to show strong growth this year and next, despite steep declines in neighboring Russia.

The IMF forecast was for a 6% drop in Russia's gross domestic product in both 1998 and 1999. By contrast, GDP was expected to grow 4.1% this year in the Transcaucasus and Central Asia region, rising an additional 3.8% next year.

But the IMF figures made public last week are already subject to downward revisions, according to officials, because they did not actually include the effects of the Russian crisis. Given the dependence of these countries on Russian trade, energy and infrastructure, there may be even greater reason for concern. Ripples from Russia's collapse have already been felt throughout the world, so the CIS nations will not be left untouched.

The IMF has made serious adjustments to its forecasts for Russia in the past five months, reducing its GDP growth estimates by 7% or more since May. In its recent report, the IMF shaved only 0.4% from its projections for the Caspian region this year, and just 1.3% for 1999.

But the regional rate will drop, in part due to a major cut in the growth estimate for Turkmenistan. Recent developments argue against optimism. A closer look at the IMF's regional forecast shows that it relies on double-digit gains in two republics, including 20% growth in Turkmenistan's GDP and a 10% increase in Georgia this year.

This week, IMF officials said they have already revised their estimate for Turkmenistan down to no more than 3% growth for this year because a recovery in gas exports did not materialize. That modest rate will hardly make a dent in last year's much larger drop of over 25%.

Then as now, Turkmenistan's inability to gain access to the Russian pipeline system since March 1997 has crimped the republic's gas exports. New exports of gas to Iran this year have made up only a fraction of the difference.

At midyear, Turkmenistan's gas production was down 41%, according to the government's figures. The Caspian Business Report also recently suggested that the first deliveries of gas through a new pipeline to Iran only started in September, rather than in February as reported previously.

The U.S. Department of Energy has a forecast that is in line with the lower figures for Turkmenistan. The agency's Energy Information Administration puts this year's GDP growth at 2% to 5%, representing only a small recovery from the 1997 plunge. An increase of about 10% in daily oil production has helped, but not enough to offset the big loss in gas.

Events in Russia may also hamper production by other republics in the region. In recent days, for example, officials of U.S.-based Texaco in Kazakhstan announced that the republic has cut output by two-thirds at its giant Karachaganak oilfield. The problem is that all of the field's oil is processed at the nearby Russian refinery in Orenburg. Non-payment has brought the arrangement to a standstill, a problem that could lead to shortages of refined products in Kazakhstan.

The republic has also suffered from a secondary effect of the Russian crisis. The Wall Street bond rating agency Standard & Poor's recently downgraded Kazakhstan's debt, citing its exposure to Russia through bilateral trade. The government of Kazakhstan sees the treatment as unjustified, but the effect may be felt in any case.

The republic has taken steps to stabilize its currency after damaging speculation in the wake of the Russia crisis. But such aftershocks may still have negative consequences for economic growth. Last week, the IMF forecast a 1.5% increase in Kazakhstan's GDP, the smallest among the republics in the region this year.

The outlook for much of the region may remain relatively positive because of foreign investment in Caspian oil development. But Russia's economic problems should not be viewed in isolation as negative influences on regional growth. Low oil prices, which have cut Russia's export earnings, have done the same thing to Iran.

This week, the Iranian parliamentary Majlis was forced to pass a package of emergency budget measures to assure that government employees will be paid. The cash squeeze raises doubts about whether Turkmenistan will be paid for its gas, although most of its early exports will go to pay for the Iranian pipeline.

Turkmenistan is also suffering from Ukraine's economic crisis. Earlier this month, President Saparmurat Niyazov was unable to reach agreement with Ukraine on $700 million in debts for past gas deliveries. The impasse may harm chances for new sales of gas to Ukraine, despite Russia's agreement on transport rates after shipments ceased 18 months ago.

In its weakened position, Russia has agreed to accept barter with Ukraine. Prime Minister Yevgeny Primakov has assured citizens that they will get food from Belarus and Ukraine in exchange for gas. The arrangement will benefit Russia and its western neighbors, because gas also crosses those republics to reach European markets. But Central Asian republics have no such strategic position, and Russia's deals may leave them with an economic loss.

(Michael Lelyveld is national correspondent for the Journal of Commerce. This analysis was written for RFE/RL)