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Central Asia: Six Months After -- Will Economic Progress Follow? (Part 4)

The 11 September terrorist attacks set into motion a chain of events that has had a profound impact on Central Asia. The attacks led to stronger political and military ties between the region and the West. But the question remains whether those ties will translate into economic gains. One positive sign is that international financial institutions have raised their profile in the region. In the fourth of a four-part series on Central Asia, RFE/RL correspondent Antoine Blua looks at the economic benefits that region may or may not gain from cooperating in the war against terrorism.

Prague, 12 March 2002 (RFE/RL) -- The terror attacks on the United States six months ago this week changed the political and military landscape in Central Asia.

The U.S., suspecting Afghanistan-based Al-Qaeda of masterminding the attacks, unleashed a military and diplomatic offensive in the region that eventually brought Uzbekistan, Tajikistan, Kyrgyzstan, and Kazakhstan into the international mainstream.

The political implications of this are thought to be profound, but what about the economic implications? Will renewed Western interest in Central Asia translate into economic growth?

Analysts, on balance, give a cautious "yes" to the question. They say prospects for Central Asia have not been better since the countries split from the Soviet Union in the early 1990s.

However, they say much will depend on the countries' abilities to democratize and to make their economies more attractive to foreign investment.

Ian Bremmer, the president of Eurasia Group and director of Eurasian Studies at the World Policy Institute, says 11 September put the Central Asian economies on the map. He tells RFE/RL that when governments are interested in a region, companies usually pay attention too.

"Central Asia as a region has done better just by virtue of being in the news as a place that is interesting, and that the U.S. and other countries are committed to. I mean, the fact that the U.S. and Russia are both interested in a serious way in Central Asia makes more companies pay attention."

Bremmer believes that, in the short term at least, Uzbekistan and Kyrgyzstan will benefit most from their cooperation with the U.S.-led coalition against terrorism by virtue of their decision to house U.S. troops.

Bremmer says the U.S. has already shown its appreciation by increasing the amount of direct assistance. In the case of Uzbekistan, Washington has committed $60 million in regular funding and approximately $100 million in supplemental funds. He says some of this assistance will trickle down to private companies.

The major international financial institutions have already indicated that they will pay more attention to Central Asia.

International lenders, like the International Monetary Fund and the European Bank for Reconstruction and Development (EBRD), play an important role for several reasons. Not only do they provide direct assistance in their own right, but they often provide stabilization funds for things like currency stability and loan guarantees. Their active presence in a country helps build confidence.

The London-based EBRD says it will raise the level of economic assistance to the Central Asian region this year to $350 million to $400 million. This compares with $269 million in 2001.

EBRD President Jean Lemierre summarized the renewed importance of Central Asia to the bank in a recent speech to the London School of Economics. Lemierre said, "There is now a window of opportunity after 11 September." He said in the past the bank -- originally established to help transition economies -- had not given sufficient attention to the region.

The European Union is planning to double aid to Central Asia under its Technical Assistance to the Commonwealth of Independent States (TACIS) program.

Zbyzko Tabernacki, an analyst at the U.S.-based consulting firm DRI-WEFA Emerging Europe Service, says he expects the IMF to make more of an effort to provide assistance.

"I think what we may see is the [Group of Seven leading industrial countries] and the IMF having closer look at the small [Central Asian] countries which depend on IMF financing. And in order to provide more of a political and economic stability in the region after [the campaign in] Afghanistan, they'll be willing to provide them with more financing in the near term."

Not all of the economies in the region are equally dependent on multinational and bilateral assistance. Kazakhstan, with its relatively large oil and gas reserves, is far less dependent on these funds than its neighbors.

Tajikistan, by contrast, is resource-poor and heavily dependent on outside assistance. Its population, wracked by years of civil war, has the lowest living standard of all former Soviet republics.

Emin Sanginov, the head of the Tajik presidency's foreign aid department, says his country is counting on increased foreign investment of $383 million in the period to 2003, compared with $242 million in 1998-2000. The country is also expecting $400 million in low-interest loans over the next three years, compared to $500 million in the previous eight years.

Analysts say the increased attention and more aid money, alone, will not lead to sustained economic growth.

Andrei Roudoi, another analyst at the DRI-WEFA, says foreign investors -- who would provide much of the capital for this growth -- are also looking to government-sponsored privatization programs to give them something to buy. He cites Kyrgyzstan and Tajikistan as countries that are dominated by one industry and have not done enough to open their economies.

"So, I think the extent of foreign investment and effects of [investment] on these countries is fairly limited. Both [Kyrgyzstan and Tajikistan] are not very advanced yet in terms of privatizing the largest utilities and there is some resistance on the part of the governments from selling the major companies, particularly the power plants, to foreigners."

Martin Raiser, a senior economist for the EBRD, says the region's main economic challenge is to move international attention away from commodities like oil and gas to other sectors of the economy. He says the Central Asian mining industry, for example, needs foreign investors to ensure its competitiveness.

He stresses, however, that Central Asia will have to compete with a strong resurgence of mining industry in Latin America, where local governments have provided a very competitive investment climate in the wake of "serious" structural adjustments reforms in the early 1990s.

But analysts say all of this will come to nothing if governments in the region fail to democratize.

John Shoeberlein is the director of the Forum for Central Asian Studies at Harvard University in the United States. He says any resurgence of instability in the region could risk losing investors' trust.

International rights groups and foreign governments have routinely criticized the regimes of Central Asia for failing to open their political systems to opposition groups and the general public.

Shoeberlein says Western governments, including the United States, now appear more willing to reduce their pressure on governments to democratize in exchange for military cooperation. He says that's a mistake.

"That 'authoritarianism' is precisely what has led to increasing tensions within the region between the governments and their populations, between the government and opposition. And that, over a longer term, could be quite destructive to the stability of the region."

Ahmed Rashid, a noted Pakistani journalist and author, goes further. He says there is a suspicion that the leaders of the Central Asian states see the increasing international attention as merely an opportunity for short-term economic gain -- one for which they will not have to give anything in return. As a consequence, he says, the anger and frustration of the populations "are going to stay."

Rashid says he thinks the Central Asian countries will benefit "enormously" from the U.S. presence as long as Washington is prepared to put pressure on governments to carry out political and economic reforms. Unfortunately, he says, we have not seen "sufficient" U.S. pressure yet.