Kyrgyzstan follows Swiss economic model

Djoomart Otorbaev, Kyrgyzstan's foreign investment minister speaks to swissinfo swissinfo.ch

After the Soviet Union’s collapse 12 years ago, Kyrgyzstan was the first of the newly independent Central Asian states to adopt a market economy.

Djoomart Otorbaev, a government minister and “special representative on foreign investments”, spoke to swissinfo about Kyrgyzstan’s often-troubled transition.

Switzerland has helped Kyrgyzstan to adapt by representing the republic at the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) and the European Bank for Reconstruction and Development (EBRD).

In 1991, Askar Akayev, a Soviet-era politician, became the country’s first president after winning 95 per cent of the popular vote.

Two years later he replaced the Russian rouble with a new national currency, the som, and privatised the country’s agricultural and industrial sectors.

In a bid to attract foreign investors, the government offered tax concessions.

More than a decade later, the country is gradually seeing some benefits from the reforms. Annual economic growth reached five per cent in 2001, before slumping in 2002.

Of all Central Asian countries, Kyrgyzstan is considered to have the most liberal economy.

swissinfo: What does Kyrgyzstan offer foreign investors 12 years after independence?

Djoormart Otorbaev: In general, the Kyrgyz Republic is not attractive to investors. [We] lack hydrocarbon resources, access to the sea, an easy trading environment and have a very limited internal market of five million.

Which means we have to be creative. We have to offer a good investment climate – a rule of law, transparent public institutions and a reliable and easy fiscal system. So we work on all of those components.

swissinfo: Switzerland became involved with Kyrgyzstan shortly after its independence. What has this relationship yielded?

D.O: Relations with Switzerland are excellent. One of the reasons we survived this very complicated period of our history is because the Swiss government really contributed.

Among the former Soviet states, there are about six countries of our size and position. Of those, only the Kyrgyz Republic has come through the 12 years without wars or major social disturbances.

The situation now, compared with ten years ago, is completely different. At that time we had real threats to national unity. We don’t have that anymore. We know what to do. The country is exporting more than it is importing.

Our national currency reserves are growing every day. Inflation is around one or two per cent, the exchange rate is very stable and [the som] has appreciated against the dollar by around ten per cent this year.

swissinfo: A large part of Kyrgyzstan’s economy is the black economy. This has led to Transparency International ranking Kyrgyzstan among the world’s most corrupt countries. What is the government doing about this?

D.O.:Firstly, I name this part of the economy the ‘unofficial economy’, not the black economy.

Most businesses are family enterprises… [and] historically they have never paid tax.

But we don’t want to harass and blame them. We say that ‘to get wool from the sheep, we have to first get the wool on to the sheep’. We feel there is a situation now where we can force those unofficial businesses to move towards the official sector and become good citizens.

We also understand that there are unofficial sectors, and we are working with businessmen to persuade them that with a contribution to the state budget they will get better services, their children will be better educated and their parents will get health care.

If the state is weak, it’s dangerous for businesses as well. For instance, traffic police get very little salary and they stop the cars and make difficulties for the drivers in order to get bribes. This is a difficult problem. Corruption leads to a weak state – it’s a closed circle and we have to cut it at some point.

swissinfo: Other than corruption, what are the biggest problems facing the economy?

D.O: We have to maintain a decent quality of life for people. We have to pay good salaries for teachers… and we have to maintain the healthcare sector because people are used to high levels of health care.

People in former Soviet countries are addicted to high levels of social services – it’s not like Africa or Latin America.

swissinfo: In its transition to a market economy, Kyrgyzstan borrowed heavily. How is it coping with the burden?

D.O.:Yes, we borrowed a lot. he size of our foreign debt is equal to gross domestic product. But it was a successful strategy because with this efficient borrowing we succeeded in coming through this very difficult period.

We now have micro-economic stability and calculate that within the next 12 years will see sustainable growth.

swissinfo: What will Kyrgyzstan’s economic future look like?

D.O.: We look at Switzerland as a potential model because in certain ways our countries have a similar location and geography. What you did in the 19th century, we want to accomplish now.

We are between China, Kazakhstan and Russia, and we have to provide service functions for those countries.

swissinfo: But aren’t border disputes with your neighbours about water, energy, and trade hindering that progress?

D.O.: The Central Asian countries are new, and not all of them are prepared to cooperate. Some want to protect their internal markets, which is understandable.

[But] Central Asian countries should understand that the GDP of all five states is equal to the GDP of Peru – which is not big. [Therefore], we have to go to the outside world as a single market, and not as five completely different unpredictable animals.

swissinfo, Jacob Greber and Philippe Kropf in Bishkek

In brief

Kyrgyzstan won independence in 1991, launched its own currency, privatised the agricultural and industrial sectors and adopted a market economy.

After subsidies from Moscow dried up in the early 1990s, the country borrowed heavily.

Between 1991 and 1995, GDP sank to half its 1990 level. Hyperinflation, unemployment and falling wages fuelled an increase in poverty.

Since 1996, the economy has regained ground, rising between 3.7% and 5% during 1999 and 2000.

Key economic drivers are agriculture, a goldmine and hydroelectricity.

Kyrgyzstan joined the World Trade Organisation (WTO) in 1998.

Key facts

Key economic figures – 2002
Gross Domestic Product – $1.6 billion (SFr2.1 billion).
GDP per capita – $290
Foreign debt – $1.75 billion
Exports – $489 million
Imports – $590 million
(source – World Bank)