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Kyrgyzstan: Reforms Promise To Reap Rewards

Prague, 21 August 1998 (RFE/RL) -- The five states of Central Asia have chosen their own individual roads to reform in the post-Soviet era, and they have encountered success and failure in varying degrees.

One of the smaller states in the region, Kyrgyzstan, has made the boldest reform efforts, particularly in comparison with its neighbor Uzbekistan, which has been a gradualist in reform.

Since 1991, the Kyrgyz government has carried through wide-ranging privatization in industry and agriculture, prices have been freed, foreign trade liberalized, currency exchange controls abolished, and more.

According to Vladimir Mikhalev, senior research fellow at the UN University's World Institute for Development Economics Research in Helsinki, Kyrgyzstan is sometimes called the most consistent and radical reformer in the whole of the former Soviet Union.

It's serious attitude to reform has naturally attracted support from international financial and aid institutions. There is strong involvement by the World Bank and International Monetary Fund, and by the European Union's TACIS program and other agencies. Kyrgyzstan has received advice and assistance, and hundreds of millions of dollars in loans since independence.

On the political front, Kyrgyzstan can be counted as one of the most liberal countries of Central Asia. As to economics, the drastic shrinkage of the economy has been stopped, and last year there was growth of some 10 percent, on top of lower, but still solid, growth in 1996. But nearly all the ordinary people confront a struggle in their daily lives.

Kyrgyzstan can be seen as a microcosm of just how difficult transition to a market economy can be in societies which have had a totally different background. The size of the country's Gross Domestic Product (GDP) shrank by more than 50 percent since independence, compared with only about 25 percent shrinkage in Uzbekistan, the region's laggard in reform. Why? The UN University's Mikhalev gives his view:

"The country, like many in the former Soviet Union, has problems first of all in institution building, corporate governance, the creation of a legal basis for normal functioning of the market economy. These are very serious problems and success in overcoming them has been limited. Lack of institutional framework for normal functioning of the market is a major impediment to progress. That's why foreign investment is not forthcoming on the scale desired."

Mikhalev says the privatized state enterprises are mostly out of tune in the new era, they have not understood how to restructure and be profitable in the market economy. Many of the workers who still have jobs are only nominally employed, and must take second jobs like street vending to bring in money. In agriculture, the individual farmers who have replaced the collective farms don't have access to capital or farm machinery, and thus the decline in the agriculture sector production has been severe.

In addition, the recent GDP growth has been mainly due to the impact of new exports of gold. As such, it is narrowly based and has little "trickle-down" effect to stimulate other sectors of the economy and thus raise living standards.

So what is the way out of the dilemma for Kyrgyzstan? Having undertaken the hard pro-reform decisions, must it go without reward? Mikhalev suggests adjustments, particularly in agriculture. "The road ahead for this country lies mainly in the resumption of agriculture, which is a major factor of the economy -- 60 percent of the economically active population is based in agriculture, so the country needs to find a way to organize its agricultural production, to help farmers, in terms of extra credit, technology, fertilizers and marketing of their products."

He says there is now growing awareness of this in the government, and he says sound policies will be needed in this sector for the future. In addition, the World Bank now has an agriculture-related project for the years ahead which can be expected to improve the situation.

(Narynbek Idinov of the Kyrgyz Service contributed to this story)