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Kyrgyzstan
Economic Reform
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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