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WEEKLY NEWSLETTER
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Kyrgyzstan
Index
Since independence, Kyrgyzstan has undertaken significant structural
reforms of its economy; in 1994 the International Monetary Fund (IMF--see
Glossary) ranked Kyrgyzstan fourth among former Soviet republics (behind
the three Baltic states) in the pace of economic reform, but positive
results have not been forthcoming. As elsewhere in the former Soviet
Union, one of the most significant reforms is privatization. The goal of
privatization, a high priority in the early 1990s, has been to create new
productive enterprises with efficient management systems while involving
the population in the reform program at a fundamental level. The process
began in December 1991 with the adoption of the Privatization and
Denationalization Law and the creation of the State Property Fund as the
agency to design and implement the program. In late 1992, a new
parliamentary "Concept Note" reoriented the program toward rapid
sale of small enterprises and ownership transition in larger enterprises
by vouchers and other special payments. By the end of 1993, about 4,450
state enterprises, including 33 percent of total fixed enterprise assets,
were fully or partially privatized. By mid-1994, nearly all services and
82 percent of assets in trade enterprises, 40 percent of assets in
industry, and 68 percent of construction assets were in private hands.
However, the practical results of those statistics have not been nearly
so positive. Most privatization (and almost all privatization in industry)
was accomplished by creation of joint-stock companies, transferring
enterprise shares to labor groups within them. Almost no public bidding
for enterprise shares occurred, and the state maintained significant
shares in enterprises after their conversion to joint-stock companies.
Also, because the sale of shares was prohibited, shareholders wishing to
leave the company had to return their holdings to the labor collective.
The 1994 Law on Privatization remedied this situation by providing for
competitive bidding for shares in small enterprises (with fewer than 100
employees) as well as long-term privatization of medium-sized (with 100 to
1,000 employees) and large enterprises by competitive cash bidding among
individuals. The new law also provided for the auctioning of all
enterprise shares remaining in state hands, over an undetermined period of
time. In 1994 and early 1995, voucher privatization moved toward its goals
quickly; by the end of 1994, an estimated 65 percent of industrial output
came from non-state enterprises.
Privatization was not the final step in economic success, however. After
that step, many firms needed drastic restructuring--most notably in
management and technology--to function in a market environment. Because
the commercial banking system had not been reformed substantially,
enterprises found little financial or technical support for such upgrading
(see Financial System, this ch.). On the other hand, enterprises
(especially state enterprises) have not been discouraged from defaulting
on loans because they often are closely associated with banks, whose
pliable loan policy is backed by the National Bank of Kyrgyzstan. Plans
called for establishment of an intermediary agency to distribute foreign
and international funds to privatized enterprises until the banking system
is able to take over lending activities. A stock exchange opened in
Bishkek in May 1995 and was considered an important step in expediting
this process.
In the early years of independence, a major cause of Kyrgyzstan's
economic distress has been corruption and malfeasance. In a January 1993
speech, President Akayev reported that as much as 70 percent of the money
that the country had invested in its economy had been diverted into
private hands. Meanwhile, a poll of the country's few entrepreneurs found
that 85 percent of them reported having to offer bribes to stay in
business. The truth of Akayev's statement was difficult to verify, but
reports in newspapers and elsewhere suggest that it could be correct.
Official data indicated that since independence at least 100,000 tons of
cast iron, steel, aluminum, and zinc had been sold abroad without legal
permission, and that a credit for 1.7 billion rubles for the purchase of
grain had vanished. Other anecdotal evidence of corruption, often
connected with local centers of political power, was plentiful (see
Structure of Government, this ch.).
Data as of March 1996
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