Ten years ago, the newly independent nations of Armenia, Georgia, Kyrgyzstan, Moldova, and Tajikistan were virtually debt free. Today they shoulder a crushing debt. The International Monetary Fund and the World Bank have issued a report on what these five poor nations -- and their creditors -- can do to manage these debts. RFE/RL correspondent Andrew F. Tully reports.
Washington, 9 March 2001 (RFE/RL) -- The five poorest nations of the former Soviet Union could be even poorer over the next decade unless they can begin to manage their enormous debt. And according to the World Bank and the International Monetary Fund (IMF), that will not be possible without serious reform.
This stark conclusion was drawn in a report that the Fund and the Bank issued on 8 March at IMF headquarters in Washington. The countries covered in the document are Armenia, Georgia, Kyrgyzstan, Moldova, and Tajikistan.
When the Soviet Union broke up, Boris Yeltsin -- then the Russian president -- decided to take on the debt of all the former Soviet republics, leaving his neighbors without this financial burden. But being debt-free did not last long, according to Samuel Otoo, an official with the World Bank's Europe and Central Asia region.
"All five countries began the transition in 1991 with virtually no external debt. By 1999, their total public and publicly guaranteed debt exceeded $5.7 billion, despite a number of reform programs supported by the international community, including the IMF and the World Bank."
Meeting with reporters at the IMF building, Otoo said the size of this debt, collectively, is too great for these countries. He noted that the per-capita incomes in these countries range from $290 a year in Tajikistan -- the poorest of the five -- to $620 a year in Georgia, the richest.
Otoo and Mohammad Shadman-Valavi, an economist with the IMF, said the debt has grown so quickly for several reasons. One is the recent increase in the price of oil for these countries, all of which are energy importers. A second is the abrupt end of financial support from Moscow when the Soviet Union broke up. Yet another factor is that all have been distracted by costly armed conflicts -- regional and/or internal -- since independence.
But most important, the report says, is that these countries are victims of bad governance, which slows the pace of transition to a democracy with a market economy. Bad governance, it says, also leads to corruption.
According to the study, the governments of Armenia, Georgia, Moldova, Kyrgyzstan, and Tajikistan must increase the pace of institutional reform -- particularly their banking and other economic systems. Such reforms are necessary to make sure that they successfully complete the transition from managed economy to the free market.
The five nations also must crack down on corruption and make their nations more attractive to business investors. Otoo put it this way:
"The basic message and the basic thrust of policy going forward needs to be to improve the environment for new firms -- for the entry of new enterprises -- and to create conditions where both foreign investors and domestic investors would have more confidence in the rules of the game -- the rule of law, respect for property rights, where sources of administrative corruption would be minimized."
Otoo acknowledged that this is what he calls a "very heavy burden" on these governments, but he adds that he can see no reasonable alternative. And Shadman-Valavi said it is important that these nations' leaders maintain their reforms without interruption. He stressed that this is the only way to achieve momentum during the transition.
But Shadman-Valavi said the burden for relieving the five countries' debt is not on these nations alone. He said other countries could help with some debt relief. But he stressed that the five must earn debt relief by demonstrating that they are moving ahead with reforms. And he said all five governments recognize this, which he called an important step in the process.
Otoo and Shadman-Valavi were asked if the report might have an undesired effect -- highlighting the financial problems of the CIS' poorest nations, and thus making other countries reluctant to restructure debt. But Shadman-Valavi replied that this probably would not be the case.
"It increases the urgency of more focus on the part of the authorities [in the five countries], but it will also encourage the creditors to pay closer attention to developments in these countries."
James Lilley -- an American diplomat who once served as ambassador to China -- says it is fine for the IMF and the World Bank to give advice to these five countries about how to reduce their debt. But he says it will be a long time before the five can be called democracies with market economies. He says they have operated for too long under what he calls an "unholy alliance" that determines the direction of their economies.
"The [leader of the] political communist cadre in the countryside, who controls government allocations, makes his arrangements with the greedy, crooked entrepreneur, who's building the factory. That's the unholy alliance."
This collusion keeps the leaders and manufacturers rich -- and the vast majority of the people poor. And with a poor populace, a government that carries a huge debt cannot raise enough tax revenue to pay off the debt. As a result, Lilley says, he believes it will be decades before Armenia, Georgia, Kyrgyzstan, Moldova, and Tajikistan emerge from crushing debt.
(Details available at http://www.imf.org/ and http://www.worldbank.org/)