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Kyrgystan: IMF Praises Kyrgyz Progress In Restructuring Economy

Washington, 18 September 1996 (RFE/RL) -- The Kyrgyz Republic has made "great strides in stabilizing and restructuring its economy" and has "laid a solid foundation for future growth," says the International Monetary Fund (IMF).

The glowing commentary on Kyrgyzstan's progress in transforming from central planning to a market economy appears as the lead article in this week's edition of the official IMF publication "Survey."

The article, prepared by the department which handles the fund's relations with most of the countries of the former Soviet Union, says the Kyrgyz Republic "has been at the forefront among CIS countries in carrying out structural reforms aimed at reducing state control of the economy and in privatizing state enterprises."

The fund has been putting strong emphasis on the need to push ahead more quickly on commercialization and privatization of state enterprises. It says Kyrgyzstan has been particularly effective in this regard.

"By the end of 1995," the article says, "almost all of the 900 enterprises included in the 1994-95 privatization program were offered for sale and state ownership was removed entirely from more than half."

It says that a number of the old state enterprises were liquidated while a large number underwent "massive downsizing and restructuring." The only problem area, the fund says, is that attempts to attract foreign investment into some of those restructured enterprises has had "limited success."

The fund says that Kyrgyzstan has undertaken "significant reforms in the agricultural sector, further lessening state control" by breaking up most state and collective farms, relaxing regulations on the use of land and eliminating export taxes on agricultural products.

Kyrgyzstan is currently drawing on a three-year enhanced structural adjustment facility (ESAF) loan totaling about $132 million, approved by the IMF in July, 1994. So far, Bishkek has drawn around $72.6 million of the credit to underwrite its reform and stabilization program through mid-1997.

"Output has begun to grow again while inflation has declined sharply" in the republic, says the IMF. "Real GDP (gross domestic product) expanded by one percent in 1995 and is expected to grow by 3.5 percent in 1996, slightly more than targeted." The IMF compares that growth to the 20 percent drop Kyrgyzstan experienced in 1994.

The country's output increase was led by "robust growth" in the agricultural sector brought about by the productivity gains realized after dismantling state farms. Also assisting the output rise was construction activity related to a large gold mining project and by rapid growth in trade and services in response to economic liberalization, says the IMF.

Industrial production, which continued to fall through 1995, is believed to be growing this year owing to exports to other CIS countries, says the article.

Inflation this year is projected at about 27 percent, but a significant amount is due to increases in domestic electricity and heating prices, which have been raised to match their true cost of production.

A key part of the Kyrgyz program is strengthening government finances, says the IMF. An "ambitious program" to improve tax administration was put into place in July and there have been improvements in many aspects of government finances.

However, Kyrgyzstan has experienced "lower-than-expected revenues," forcing the government to meet its deficit target by holding-up payments. Those domestic payments arrears have begun causing problems, says the fund, particularly at the local level. So, the government is now putting into place measures to clear up the payments arrears by the end of the year.

The IMF says the Kyrgyz Republic has launched a comprehensive bank restructuring program and its currency, the som, continues to enjoy full current and capital account convertibility.

The fund says its main advice to Kyrgyz officials is to stick to its program.

"The authorities need to persevere with sound financial policies and deepening structural reforms," the article says.