Kyrgyzstan: Russian Economic Assistance Gives Bishkek a Lift

The global economic crisis is starting to hit hard just as Kyrgyzstan is preparing to hold a snap presidential election. In an effort to contain the economic damage, officials are intensifying efforts to stabilize the Central Asian state's finances.

The Kyrgyz government recently received a $150 million grant from Russia, along with $300 in soft credits -- part of a broader $2.15 billion assistance package offered by the Kremlin -- that can immediately be used to plug gaps in the state budget. [For background see the Eurasia Insight archive]. "The money will help us survive the effects of the crisis at first. We hope that the support will help us to create conditions for stable economic growth," Minister of Economic Development and Trade Akylbek Japarov said during an April 8 news conference, held at the editorial offices of the 24.kg news agency.

But the government seems to recognize a need for more to be done. To that end, Japarov announced that the government would try to oversee a managed devaluation of the country's national currency -- the som.

Officials are feeling an acute need to preserve a semblance of stability in Kyrgyzstan, given that a presidential vote is now slated to be held in July. The economic backdrop for the election cannot be considered a campaign advantage for incumbent Kurmanbek Bakiyev, who is widely anticipated to seek another term. The Kyrgyz economy slipped into negative growth territory during the first two months of the year, and Japarov revealed on April 8 that government revenues were projected to be way down in 2009.

In speaking about the som and foreign exchange rates, Japarov indicated that Kyrgyzstan did not want to emulate the examples set by Russia and Kazakhstan, two countries that experienced economic turmoil due to rapid drops in the value of their respective national currencies. At the same time, the minister indicated that the Kyrgyz government lacked the resources to maintain the som at the current exchange rate.

"We can not take risks and make sudden movements in the currency market. Russia allowed its currency to be devalued sharply. Kazakhstan followed the same principle. But a gradual devaluation is, in my opinion, better," he said. "The Russian ruble at the end of 2008 was down 50 percent. But the som lost 13 percent in total."

Efforts to defend the som so far in 2009 appear to have drained Kyrgyz government coffers of much-needed gold reserves. The value of the Kyrgyz National Bank reserves declined by $160 million during January of 2009, the 24.kg news website cited Japarov as saying.

Aza Migranyan, an economics expert at the Kyrgyz Russian-Slavonic University, told EurasiaNet, "I don't think the Kyrgyz som is facing any dangers at the moment. The som is not at risk in the short term."

Migranyan said she agreed with Japarov's assessment, but maintained that the government was obliged to consider political as well as purely economic outcomes. "The government can't do much because it's not a fully economic issue, but a political question too," Migranyan said.

To bolster the government's ability to respond to mounting social and economic pressures, Kyrgyzstan has also joined the Eurasian Economic Community's stabilization fund, the Kazinform news agency quoted Kazakhstani Finance Minister Marat Sultanov as saying at an April 8 news conference.

The fund will be able to deploy roughly $10 billion in assets to help participating states both stabilize and stimulate their respective beleaguered economies. Russia is expected to be the fund's principal donor -- kicking in as much as $8 billion. Sultanov indicated that Kyrgyzstan had indicated that it would contribute $1 million. Bishkek would likely draw a far higher amount of money out of the fund in the coming weeks and months.

The gravest threats to the Kyrgyz economy are falling remittances and a lack of direct foreign investment, Migranyan said. "It's not that problems appeared when the crisis started, they were there all along but hidden, and with the global financial crisis they became stronger and revealed," Migranyan added.

"There has been a drastic decrease of investment in the Kyrgyz economy," she continued, adding that trade relations have also experienced a jarring shift. "Competition is high in the raw materials export sector and prices are dropping, which is not good for our economy. But our banking system wasn't hurt too much due to its low integration with the world financial system."