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Kyrgyzstan: IMF Urges Adoption Of Supplement Budget

Washington, 1 April 1999 (RFE/RL) -- The Executive Directors of the International Monetary Fund (IMF) have urged Kyrgyzstan to adopt a supplementary budget for 1999 to deal with the pension arrears and budgetary expenses accumulated last year due to the impact of the Russian financial crisis.

The directors, in their annual review of the Kyrgyz Republic's economy, said the Russian turmoil had severely affected Bishkek's overall economic performance in 1998, slowing growth to only two percent and accelerating inflation to 18 percent.

They praised Kyrgyz authorities for strong, although belated, actions to tighten both fiscal -- government budget outlays -- and monetary policies. Even then, they noted, the foreign exchange rate of the Kyrgyz som fell sharply and the shortfall in exports contributed to a doubling of the country's external current account deficit.

The annual review was conducted by the 24 IMF executive directors who, individually or in groups, represent all 184 member nations of the fund in overseeing its daily operations. The review was conducted March 3 and released this week.

The directors said there had been some shortcomings in the country's first reaction to the effects of the Russian crisis -- the national bank, for example, should have allowed a faster depreciation of the currency exchange rate. But they added that the government's overall response since has been strong and should help stabilize the situation and foster an environment conducive to sustained growth.

Still, they said, Kyrgyzstan needs to continue focusing on fiscal restraint to contain domestic demand, reduce inflation and to clean up the arrears and over-expenditures from 1998.

The directors praised Bishkek for revenue-enhancing measures adopted recently and urged them to resist proposals to grant tax holidays or exemptions which would erode the tax base.

But while keeping tax revenues strong and expenses down, the IMF directors reminded Kyrgyzstan to protect social spending to help alleviate the impact of the crisis on the poorest and most vulnerable segments of society.

To assist in this effort, the IMF in early March added $12 million to the country's three-year enhanced structural adjustment loan of about $88 million approved last summer.

In their annual review, the IMF directors also expressed concern about the slowdown of the momentum of reforms in some structural areas such as privatization and the modernization of the legal and regulatory framework.

They urged authorities to speed up the privatization of large state monopolies, especially Kyrgyz Airlines which continues to be a burden on the state budget, and to adopt the necessary legal framework for the private ownership of land.

The directors welcomed as "a major milestone" the recent approval of a referendum allowing full private land ownership under the constitution, but said progress on other much needed legislation, such as the mortgage law, has been slow and implementation difficulties have undermined the effectiveness of the modernized legal framework.

The IMF directors also commended Kyrgyzstan for its October accession into the World Trade Organization (WTO) as a commitment to keeping open and liberal trade and exchange rate regimes.