EurasiaNet Eurasia Insight - Kyrgyzstan Contemplates Joining Debt-Relief Program

EURASIA INSIGHT

KYRGYZSTAN CONTEMPLATES JOINING DEBT-RELIEF PROGRAM
Daniel Sershen 12/06/06

By year’s end, Kyrgyzstan is due to decide whether to join a donor-sponsored program to write off much of its external debt. But the prospect of the country acknowledging that it holds a place among the world’s poorest and worst-governed states has sparked a heated debate over what 15 years of loans have achieved.

A delegation from the World Bank, visiting Bishkek from November 29 to December 15, is expected to set final conditions for Kyrgyzstan’s entry into the Heavily Indebted Poor Countries Initiative (HIPC). In return for a commitment to ongoing economic reform, HIPC offers participating states the chance to cancel debt from major creditors such as the International Monetary Fund (IMF), the World Bank, and bilateral donors.

Given that Kyrgyzstan could eventually see up to 70 percent of its $2 billion external debt eliminated, the HIPC backlash seems to have caught some officials and analysts off-guard. On the surface, the benefits of joining the program seem to far outweigh any potential pitfalls. A combination of national pride, frustration with government mismanagement, and distrust of international financial institutions has fueled opposition to the plan.

The opposition to the program came as "a big surprise for me, and for international organizations and their consultants as well," said Marat Tazabekov, Director of the Economic Policy Institute, a Bishkek-based think tank that has studied the subject. "In the beginning it was a purely technical matter: we formally have met most of the conditions and just need to complete a couple more and they will write off lots of debt," he said.

Opponents contend that joining HIPC would deepen Kyrgyzstan’s dependence on international financial institutions, possibly resulting in a reduction in the country’s sovereignty. They also say that the plan offers no guarantee that it would improve the quality of life for most Kyrgyz citizens. "They [proponents of the plan] can’t show us a single place on a world map where people are living better under HIPC," said Natalia Ablova, Director of the Kyrgyz Bureau for Human Rights and the Rule of Law, one of several organizations that led an anti-HIPC protest outside the World Bank office in Bishkek on November 29. As an alternative, the groups are promoting a national fundraising campaign to pay off the debt without donor involvement.

Ablova asserted that the "vicious circles" of World Bank and IMF credits were a major cause of Kyrgyzstan’s debt problem, not a solution. "But HIPC is something much more terrible and irreversible than a regular credit, because it envisions control of the country’s resources," she said. According to Ablova, the program’s "loose phrasing of conditionalities" allows for direct interference in the formulation of government policy.

World Bank Country Manager Roger Robinson said that this was "not at all" the case. The Kyrgyz government would retain full control over the policy-making process, he insisted. "Timing of implementation and continuation of reforms are both at the government’s discretion," he said. "Of course, the quicker the reforms are implemented, the quicker the government can benefit from debt relief from all of its external creditors."

A World Bank fact sheet on Kyrgyzstan stated that, on average, countries completing the HIPC process had used freed funds to increase anti-poverty programs from 6.4 percent of Gross Domestic Product (GDP) in 1999 to an estimated 9.1 percent in 2005.

Compelling as the figures may be, Tazabekov said, on an emotional level, Kyrgyzstan’s comparison with the world’s poorest nations is blow to national pride. When the Kyrgyz Republic was part of the Soviet Union, Moscow extended aid to some of the very same countries that are now considered Kyrgyzstan’s contemporaries in poverty. "It shakes our identity," Tazabekov said.

The government itself appeared divided on the question of HIPC participation. Several senior officials, most notably Deputy Prime Minister Daniyar Usenov and Foreign Minister Alikbek Dzhekshenkulov, came out strongly in recent months against Kyrgyzstan’s participation. The Foreign Ministry publicly rebuked US Ambassador Marie Yovanovitch for suggesting on April 17 that the country should join the program.

Officials from the National Bank and the Ministry of Economy and Finance generally support Kyrgyzstan’s entry, however, arguing that declining to join HIPC would put a severe strain on the country’s fragile financial system. "Kyrgyzstan does not have any options other than the HIPC program for resolving the external debt problem," State Secretary of the Ministry of Economy and Finance Azamat Dikambayev said November 23, the Kabar news reported. The head of the external debt department at the Ministry, Ernest Abrazakov, said that servicing the current debt without joining HIPC would alone require a 10 percent increase in tax revenues each year, plus an almost half-percentage-point annual gain in GDP, according to the same report.

With a final decision looming, government officials have sought to project a unified front, with President Kurmanbek Bakiyev and Prime Minister Feliks Kulov both claiming that Kyrgyzstan will join HIPC if conditions are favorable. In addition, the program’s sharpest critic, Usenov, has adopted the government line and has effectively retracted his earlier vow to resign.

According to Tazabekov, this is an indication that the government has already made a decision. But regardless of the result, he said, the HIPC controversy has prompted a deeper debate in society over where the $2 billion in aid went, and whether Kyrgyzstan’s people have sufficient oversight of the financial decisions made by their government. "For the first time in 15 years, we [citizens] are beginning to understand that we are the masters, the shareholders, of this country," Tazabekov said.

Editor�s Note: Daniel Sershen is a freelance journalist based in Bishkek.

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