Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan · COUNTRY REPORT Kyrgyz Republic Tajikistan...

COUNTRY REPORT

Kyrgyz Republic

Tajikistan

Turkmenistan

Uzbekistan

4th quarter 1996

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 1361-1488

Contents

3 Summary

Kyrgyz Republic5 Political structure6 Economic structure7 Outlook for 1997-989 Review9 The political scene

12 Economic policy14 The economy16 Foreign trade and payments17 Business news

Tajikistan18 Political structure19 Economic structure20 Outlook for 1997-9822 Review22 The political scene24 Economic policy25 The economy

Turkmenistan28 Political structure29 Economic structure30 Outlook for 1997-9831 Review31 The political scene34 Economic policy36 The economy38 Oil and gas40 Foreign trade and payments41 Business news

Uzbekistan42 Political structure43 Economic structure44 Outlook for 1997-9847 Review47 The political scene50 Economic policy54 The economy57 Oil and gas

1

EIU Country Report 4th quarter 1996 © The Economist Intelligence Unit Limited 1996

58 Foreign trade and payments59 Business news

61 Quarterly indicators and trade data

List of tables9 Kyrgyz Republic: forecast summary

15 Kyrgyz Republic: trend of gross domestic product and industrial output15 Kyrgyz Republic: grain production16 Kyrgyz Republic: inflation16 Kyrgyz Republic: foreign trade22 Tajikistan: forecast summary31 Turkmenistan: forecast summary35 Turkmenistan: Mr Niyazov’s economic targets (1996 plan)36 Turkmenistan: industrial and energy production, 199637 Turkmenistan: agricultural production and targets38 Turkmenistan: oil and gas production40 Turkmenistan: foreign trade41 Turkmenistan: external debt by creditor46 Uzbekistan: forecast summary53 Uzbekistan: state-sector share of economic activity, Jan-Jun55 Uzbekistan: economic performance, Jan-Jun 199655 Uzbekistan: origins of gross domestic product at factor cost, Jan-Jun55 Uzbekistan: components of gross domestic product, Jan-Jun57 Uzbekistan: consumer price inflation58 Uzbekistan: production of hydrocarbons, Jan-Jun 199658 Uzbekistan: composition of trade, Jan-Jun61 Kyrgyz Republic: quarterly indicators of economic activity61 Tajikistan: quarterly indicators of economic activity62 Turkmenistan: quarterly indicators of economic activity62 Uzbekistan: quarterly indicators of economic activity63 Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan: OECD trade

Important: The following tables have been updated.64 Former Soviet republics: currency status65 Former Soviet republics: exchange rates66 Former Soviet republics: GDP and GDP per head

List of figures9 Kyrgyz Republic: gross domestic product

15 Kyrgyz Republic: inflation22 Tajikistan: gross domestic product31 Turkmenistan: gross domestic product37 Turkmenistan: agricultural production46 Uzbekistan: gross domestic product56 Uzbekistan: agricultural production

2


October 25, 1996 Summary

4th quarter 1996

Kyrgyz Republic Outlook for 1997-98: The external environment is set to deteriorate amidthe worsening security situation in both Afghanistan and Tajikistan and uncer-tainty over the health of Boris Yeltsin. The domestic political situation willremain stable. IMF targets are likely to be missed this year. The rising tradedeficit could force a devaluation of the som. Modest GDP growth in the rangeof 2-3.5% is predicted for 1996-98.

Review: The civil wars in Afghanistan and Tajikistan have brought a calmresponse from Bishkek. The expected flood of refugees from Tajikistan has notoccurred. Disagreements have surfaced with Uzbekistan. An anti-corruptiondrive has claimed more state officials. Budget spending is being held down. Anexport duty has been imposed on grain, and government ministers have threat-ened to reintroduce some state controls. Financial-sector reforms have beenunveiled. The economy has emerged from recession with the grain harvest ontarget. Inflation has continued to moderate. The trade deficit has widened verysharply this year.

Tajikistan Outlook for 1997-98: Scheduled peace talks give some hope of a conclusion ofthe civil war. However, recent military successes by the Taliban in Afghanistanmay undermine the government’s commitment to seek an end to the conflict.Further skirmishes are likely, although there is no prospect of a decisive mili-tary victory by either side. The economy will remain in recession and foodshortages are likely to increase.

Review: The civil war has continued, with the opposition recording a numberof military successes. Developments in Afghanistan have enhanced the statusof the Russian military in Tajikistan. The government is sticking to its IMF-approved economic programme. The economy has remained in recession asaluminium and cotton production have fallen. Grain shortages have occurred,and energy supply has been erratic.

Turkmenistan Outlook for 1997-98: The rule of Saparmurad Niyazov will continue to beunpredictable. Economic growth is likely to be very strong in 1996 but the ratewill be unsustainable in the absence of restructuring. Inflation will continue tobe a problem. The current account will remain in surplus, buoyed by strong gasexports.

Review: Ashgabat has broken with its Central Asian neighbours in its re-sponse to developments in Afghanistan, undermining Turkmen relations withboth Uzbekistan and Iran. Popular discontent with the regime has risen.Another prison mutiny has occurred. France has continued to develop linkswith the Niyazov regime. The president has backed away from economicreform, and privatisation is proceeding only slowly. The 40% rise in gas prod-uction boosted economic growth in the first half. The cotton and grainharvests have been disappointing. Work on a gas export pipeline to Iran hasbegun but prospects for the construction of a pipeline to Pakistan have

3


receded. New contract terms have been drawn up for oil and gas development.Foreign trade has remained in surplus.

Uzbekistan Outlook for 1997-98: Uzbekistan will seek to use the recent developments inAfghanistan to bolster its regional standing. The civil war in Tajikistan willcontinue to cause concern in Tashkent. The momentum of economic reformwill remain slow as will the economic recovery, with zero growth forecast forthis year. The current account will move into substantial deficit, forcing adevaluation of the som.

Review: Uzbekistan has called for a coordinated CIS response to counter thethreat posed by the Taliban in Afghanistan. Relations with Russia have im-proved. There has been little easing in government restrictions on the politicalopposition and the press. The budget is apparently close to balance, but thisowes something to manipulating income and spending flows. There are signs ofa shortage of hard currency. Import substitution has remained a governmentpolicy objective, while privatisation has been limited. Proposals for the creationof investment funds have been announced. The first half of 1996 saw a weakeconomic recovery. New telecommunications deals are announced. Cottonoutput has slumped. Inflation is generally easing down. Gas productionstagnated in the first half. Foreign trade continued in deficit at around theyear-earlier level, but there has been a marked shift in direction away fromthe CIS.

Editor:All queries:

Timothy AshTel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Kyrgyz Republic

Political structure

Official name Kyrgyz Republic

Legal system The Kirgiz Soviet Socialist Republic declared its independence in August 1991. At thesame time the state’s name was changed to the Kyrgyz Republic; its constitution wasapproved on May 5, 1993. The president’s powers were enhanced through areferendum held on February 10, 1996

National legislature The 313-member Jogorku Kenesh of the Soviet era has been replaced by a 105-memberbicameral parliament, elected for a four-year term

National elections February 5, 1995 (legislative) and December 24, 1995 (presidential); next elections dueby February 1999 (legislative) and December 2000 (presidential)

Head of state The president, Askar Akayev, elected unopposed on October 13, 1991; he wasre-elected in an early presidential poll in December 1995 with 71.6% of the vote

National government The president appoints a prime minister who forms a government. The current cabinetwas formed in April 1995

Main political parties Communist Party of Kyrgyzstan; Ata-Meken and Erkin Kyrgyzstan (small Kyrgyznationalist parties); Civic Movement of Kyrgyzstan

Prime minister Apas DzhumagulovHead of the Presidential Administration Kubanychbek ZhumaliyevHead of the National Security Council Beksultan IshimovFirst deputy prime minister Abdyzhapar TagayevDeputy prime ministers for agriculture Bekbolat Talgarbekov for industry Amangeldy Muraliyev for social affairs Mira Dzhangaracheva

Key ministers Agriculture Karimsher AbdumomunovDefence Mirzakhan SubanovEconomy Taalaybek KoichumanovEducation Askar KakeyevFinance Kemelbek NanayevForeign Roza OtunbayevaHealth Naken KasiyevIndustry & trade Andrei IordanInterior Omurbek KutuyevJustice Larisa GutnichenkoLabour & social security Zafar HakimovTransport Toktorbek Azhikeyev

Central bank governor Marat Sultanov

Kyrgyz Republic 5


Economic structure

Latest available figures

Economic indicators 1991 1992 1993 1994 1995

GDP at current prices Rb bn 86.0 525.0 5.7a 10.0a 13.3a

GDP at exchange rate $ bn 3.9 2.4 0.7 0.9 1.2

GDP at purchasing power parityb $ bn 12.4 10.4 8.7 6.4 6.0

Real GDP growthc % –3.6 –15.9 –16.1 –26.5 –6.7

Consumer price inflation % 85.0 855.0 1,209.0 278.0 42.6

Population m (mid-year) 4.45 4.49 4.53 4.60 4.67

Exportsd $ m 6,547.0e 76.5 112.1 117.1 166.2

Importsd $ m 6,783.0e 70.5 112.0 107.5 166.7

Exchange rate Som:$ (av) 22.0f 220.0f 8.0 10.6 10.7

October 18, 1996 Som14.05:$1

Origins of gross domestic product 1994g % of total Components of gross domestic product 1993g % of total

Agriculture & forestry 34.7 Private consumption 66.8

Industry 23.8 Public consumption 11.3

Construction 4.2 Gross fixed investment 12.7

Other 37.3 Change in stocks 17.3

Total 100.0 Net exports –7.2

GDP incl others 100.0

Principal exports 1993d % of total Principal imports 1993d % of total

Fuel, minerals & metals 59.0 Food 38.0

Other primary commodities 3.0 Other primary commodities 15.0

Machinery & transport equipment 1.0 Manufactures 47.0

Other manufactures 37.0

Main destinations of exports 1994dg % of total Main origins of imports 1994dg % of total

China 48.1 USA 33.0

UK 25.3 China 10.4

Germany 5.7 Germany 6.4

France 1.9 South Korea 3.8

Afghanistan 1.7 Japan 2.5

Italy 1.5 Sweden 2.5

a Som bn. b EIU estimates. c Real GDP growth rates for 1991-94 are based on series from the World Bank’s Statistical Handbook: States of theFormer USSR. Data for 1995 are from the Kyrgyz Republic Goskomstat. d Trade outside the former Soviet Union. Trade with former Sovietrepublics accounted for 87.8% of the Kyrgyz Republic’s exports and 95.5% of its imports in 1992. e Rb m; valued at domestic prices whichrepresent internal prices originally set under the centrally planned economic system, and thus differ substantially from world market prices.f Rb:$. g World Bank estimates.

6 Kyrgyz Republic


Outlook for 1997-98

The regional environmentis set to deteriorate—

The last Country Report argued that the main threat to stability in the KyrgyzRepublic was the external environment. Developments in the last quarter, inboth Afghanistan and Tajikistan, have made what looked only three monthsago to be a medium-term threat appear much more immediate. However, thedanger of the Afghan civil war spreading to the Kyrgyz Republic is very small,although the prospect of some Afghan refugees coming to the Kyrgyz Republicvia Tajikistan will cause concern in Bishkek. While these refugees will pose nosecurity threat, they will strain the country’s limited resources. The dangersfrom the Tajik civil war are greater and more immediate. The Tajik oppositionappears to be attempting to redeploy its forces from Afghanistan into baseswithin Tajikistan itself, and has had some success in establishing bases near theTajik-Kyrgyz border. The fear of the Kyrgyz government is that with Tajikgovernment forces and their Russian allies likely to launch military strikes atthese bases, the flow of refugees into the Kyrgyz Republic will increase. Equallythreatening for the Kyrgyz Republic is the possibility that fighting may actuallyspread across the Tajik-Kyrgyz border.

—and the power vacuumin Russia will not help—

The Kyrgyz Republic will have little choice but to remain closely allied toRussia. Unlike Uzbekistan, the Kyrgyz Republic lacks the resources to go italone, particularly when its comes to defence. Like Kazakstan, the KyrgyzRepublic will continue to view Russia as a protector against regional instability,the ambitions of Uzbekistan and the growing political and economic clout ofChina in the region. The problem for the president of the Kyrgyz Republic,Askar Akayev, is that the recent ill-health of the Russian president, BorisYeltsin, has created a dangerous power vacuum in Moscow which means thatRussia will be an unreliable ally for the foreseeable future. With the Russianpresident largely incapacitated Russian policy will continue to drift, with keydecisions simply not being made. The chaos in Russian policy was evident overthe response to the recent military success of the Islamist militia, the Taliban,in Afghanistan. In particular, differences in policy emerged between thecautious wait-and-see position taken by the Russian foreign minister, YevgenyPrimakov, and the aggressive anti-Taliban rhetoric of the then Secretary of theRussian Security Council, General Aleksandr Lebed.

—which suggests adifficult period ahead—

In any event the next two years will prove to be very difficult for the KyrgyzRepublic’s external relations. Mr Akayev may well regret the cooling of tieswith Washington, a process which began with his closure of the old Soviet-eraparliament in September 1994 and which has accelerated as US ties withUzbekistan have strengthened.

—but domestic stabilitywill probably be

maintained

Domestic stability will probably be maintained as Mr Akayev continues toretain strong control over the levers of power, in particular the media and thesecurity services. But unlike his Central Asian neighbours, Mr Akayev is nodictator. Instead, he is an adept manipulator of the political process, using hisexecutive power and the courts to constantly wrong-foot the divided oppo-sition. However, the Kyrgyz Republic’s social and ethnic tensions will continueto prove difficult to keep under control. First, Mr Akayev will have to balance

Kyrgyz Republic 7


the interests of the Kyrgyz Republic’s various regions. Second, he will have tocontain tensions between the northern and southern Kyrgyz peoples. Third, hehas to reassure the Russian minority in the Kyrgyz Republic that its position issecure in order to slow its rate of emigration. One factor contributing to thedrop in Russian emigration from the Kyrgyz Republic has been the improve-ment in the country’s economic outlook, but this could easily be reversed.Fourth, the president has to ensure that relations between the Kyrgyz and theUzbek minority in Osh province do not explode into violence, as occurred in1990. In the event that violence were to flare again, the fear is that the Uzbekauthorities might seek to become involved in keeping the peace in Oshprovince. Finally, the country’s social tensions have to be contained. Manyworkers have not been paid for up to six months. With cold weather approach-ing, their patience is wearing dangerously thin.

IMF targets are unlikely tobe met—

The government looks set to miss most of its IMF targets in 1996. Althoughfiscal data are scarce, there is every indication that the deficit (including foreigngrants) will exceed 5.5% of GDP. Inflation will also easily miss the 15.1%end-year target. Inflation is likely to run at 2.2% per month for the rest of theyear, leading to an end-year rate of 30% and an annual average of 30.2%. Overthe longer term, and assuming a maxi-devaluation is avoided, inflation isexpected to gradually ease to an annual average rate of 20% in 1997 and 17%in 1998. The current-account deficit (excluding foreign grants) is also set to bewell above the rate of 14% of GDP stipulated in the Enhanced StructuralAdjustment Facility (ESAF) programme agreed with the IMF. The only IMFtarget that the authorities have a chance of attaining is 2.4% real GDP growthin 1996; the EIU expects the rate to reach 2%, with growth of 3% in 1997 and3.5% in 1998.

—and the governmentfaces hard economic

policy choices—

The government has allowed the economy to overheat, resulting in a largetrade deficit equivalent to 19% of GDP in the first half of 1996. With the fiscaldeficit also over target, the already precarious balance-of-payments positionhas deteriorated. At present it is probably too late to salvage the government’seconomic programme for 1996. However, the administration will have to pre-vent economic growth from accelerating further and so sucking in more im-ports. The policy choices are not easy and will require skilful management.First, the government will have to slow growth sufficiently to stem the rise inimports but not strangle the recovery. Second, the som will have to be devaluedin order to regain some of the competitiveness lost as a result of higher thanexpected inflation. Raising import costs in this way will inevitably cause someinflation but this could be offset with a tightening of monetary policy. How-ever, at least in the short term, devaluation should boost exports and help tonarrow the current-account deficit. Third, the authorities will have to restoresome order to the fiscal accounts without leaving vulnerable groups worse off.A similar mixture of devaluation and austerity has been pursued with reason-able success by Hungary since 1995.

—or there will be acurrent-account crisis

Although the government’s first instinct will be to avoid such difficult policydecisions, the prospect of a som crisis is likely to force its hand. On currenttrends, total exports in 1996 are likely to reach $450m (24% of GDP), while

8 Kyrgyz Republic


imports are set to rise to $800m (43% of GDP), yielding a $350m trade deficit(19% of GDP). If growth picks up to as much as 3% of GDP, the trade deficitcould rise still further, to $400m or 21% of GDP. Faced with such a large tradedeficit the government will probably attempt to manage a gradual depreciationof the som, rather than introducing a large one-off maxi-devaluation. In theevent that the trade deficit were allowed to grow, a maxi-devaluation would beall but unavoidable, with disastrous effects on inflation and growth.

Kyrgyz Republic: forecast summary(% change year on year unless otherwise indicated)

1995a 1996b 1997b 1998b

Real GDP –6.7 2.0 3.0 3.5

Industrial production –12.5 1.5 2.0 2.5

Consumer prices 42.6 32.0 20.0 17.0

Trade balancec ($ m) –82.7 –350.0 –300.0 –250.0

Average exchange rate (Som:$) 10.7 13.0 20.0 25.0

a Actual. b EIU forecasts. c Total trade.

Review

The political scene

More threats from thesouth—

The Kyrgyz Republic’s worries about the regional environment have worsenedconsiderably following the capture of the Afghan capital, Kabul, by the Talibanmilitia on September 27 (3rd quarter 1996, page 8). The threat from develop-ments in Afghanistan is not immediate and the Taliban have stated that theyhave no ambition to attack Central Asia. However, the Kyrgyz Republic isworried that the anti-Taliban forces in Afghanistan may crumble in the face ofa Taliban onslaught, precipitating a flood of refugees into the Kyrgyz Republicwhich the authorities would struggle to cope with.

The situation in Afghanistan is very fluid, but the country is roughly dividedinto three parts. Southern and central Afghanistan is controlled by the Taliban,a militia built around a core of theological students who have set about impos-ing an extremist Islamic regime in the regions under their control. The Talibanappear to have some support from Pakistan. North-east Afghanistan is control-led by Ahmed Shah Massoud, an ethnic Tajik who still leads the remnants ofthe army loyal to the former president, Burhanuddin Rabbani. Mr Massoudand Mr Rabbani’s forces have been fighting back after their ignominious ejec-tion from Kabul in September. Mr Massoud was the commander of the mainlyTajik forces resisting the Taliban. In north-west Afghanistan there appears to bea temporary stand-off between the Taliban and the Uzbek militia led byGeneral Abdul Rashid Dostam, who is reported to be receiving military backingfrom Uzbekistan. Mr Massoud’s forces are less well armed than GeneralDostam’s and so are likely to succumb first.

-28

-24

-20

-16

-12

-8

-4

0

4

1991 92 93 94 95 96 97 98

Kyrgyz Republic: gross domesticproduct% change, year on year

Source: EIU.

ForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecastForecast

Kyrgyz Republic 9


—although the reactionfrom Bishkek has been

moderate

Although the government is privately very concerned, the official reaction inBishkek to developments in Afghanistan has been one of relative calm. Thepresident, Askar Akayev, has made a point of being conciliatory towards theTaliban. In particular, he has scrupulously avoided association with the hardlineanti-Taliban remarks made by the former Secretary of the Russian SecurityCouncil, General Aleksandr Lebed, and the president of Uzbekistan, IslamKarimov. At the emergency summit on Afghanistan held in the Kazak capital,Almaty, on October 4, attended by Kazakstan, the Kyrgyz Republic, Russia,Tajikistan and Uzbekistan, Mr Akayev successfully called for non-interference inAfghanistan. To the irritation of Mr Karimov, Mr Akayev urged Commonwealthof Independent States (CIS) members not to extend support to General Dostam.

There are equallythreatening developments

in Tajikistan—

At the same time as the balance of power was shifting in Afghanistan, there weresignificant upheavals in neighbouring Tajikistan. The Tajik opposition has builtupon its earlier military successes and now appears to have redeployed the bulkof its forces from Afghanistan back into Tajikistan. Indeed, a fortnight before theTaliban captured Kabul, fighting flared in northern Tajikistan near the borderwith the Kyrgyz Republic. The Tajik opposition captured the district of Jirgitalon the Tajik-Kyrgyz border on September 6. A similar incursion in May hadcaused the Kyrgyz Republic to put its main military unit, the Osh Motor RifleDivision, on alert (3rd quarter 1996, page 8). The Kyrgyz Republic’s SecurityCouncil responded by taking the precaution of tightening border controls onSeptember 13, mainly to stem the potential flood of refugees.

—although there has beenno flood of refugees

The capture of Jirgital by the Tajik opposition seems to have caused very fewrefugees to try to cross into the Kyrgyz Republic. Contrary to the fears of theKyrgyz government, the mainly ethnic Kyrgyz population of Jirgital did not tryto flee across the border. There are an estimated 15,000 Tajik refugees registeredin the Kyrgyz Republic, mainly in the Osh and Dzhalalabad provinces. Whenunregistered refugees are included the figure could be as high as 20,000. Manyof these refugees are ethnic Kyrgyz from Tajikistan. According to the govern-ment there were clashes between the refugees and locals in the Kyrgyz Republicdistrict of Bakten near the common border earlier this year. For its part, the Tajikopposition has been keen to soothe Bishkek’s fears. It is not in the Tajikopposition’s interests to stimulate a coordinated response by the Kyrgyz Republicand the other Central Asian republics to its recent military successes. The headof the Tajik opposition movement, Sayed Abdullo Nuri, issued a statement onSeptember 17 promising not to cross the border or impose new regulations inthe conquered districts.

More open disagreementswith Uzbekistan—

Relations with Uzbekistan have worsened after Mr Akayev took a noticeablydoveish line towards the Taliban at the Almaty summit. Mr Akayev’s view wasstrongly supported by the president of Kazakstan, Nursultan Nazarbaev. TheKyrgyz and Kazak presidents’ dismissive attitude towards his client, GeneralDostam, will have infuriated the Uzbek president, Islam Karimov. Indeed,Mr Karimov found himself in the embarrassing position of having to rely uponRussia for support for his desire to prop up General Dostam and to confront theTaliban militia in Afghanistan. Mr Karimov has made great play in the past ofhow, under his leadership, Uzbekistan has become fully independent of Russia,

10 Kyrgyz Republic


whereas the Kyrgyz Republic and Kazakstan need Russian military assistance tohelp them defend their borders.

Kyrgyz relations with Uzbekistan were also not helped by the decision of theKyrgyz Republic’s Human Rights Bureau to boycott the Organisation for Securityand Cooperation in Europe (OSCE) seminar on human rights held in Tashkenton September 11. The Human Rights Bureau is independent of the governmentand argued that its decision not to attend was a reflection of Uzbekistan’s failureto respect human rights. Mr Karimov is likely to see the boycott differently andwill take the view that it was a snub orchestrated by Mr Akayev.

—and Mr Akayev hasreappointed a key official

In a related development Mr Akayev has reappointed Janysh Rustembekov tothe state administration. On July 30 Mr Rustembekov was sacked from hisposition as governor of Osh province only three days after warning of thedangers of an Uzbek troop build-up on the border between the two countries(3rd quarter 1996, page 8). Such a public admission of the Kyrgyz Republic’smistrust of Uzbekistan from a senior official was deemed undiplomatic.Mr Rustembekov was crucial in engineering the constitutional changes of1994-95 that gave Mr Akayev strong executive powers.

The anti-corruption driveclaims more heads—

The domestic political scene meanwhile is calm. The main issue in domesticpolitics, Mr Akayev’s attempt to end corruption in the administration, hasclaimed more victims and potential enemies for the president. The most spec-tacular casualties this quarter have been regional governors. On September 12the Security Council sacked Zhumagul Saadanbekov, the governor of Issyk-Kulprovince in the north of the Kyrgyz Republic, and Beishenbek Belotbekov,governor of the southern Naryn region. Officially, both men lost their jobs for“serious breaches of financial discipline”. Anatoly Lemeshenko, the director ofthe State Customs Directorate, a position with considerable lucrative potential,was also dismissed.

—but may be coming toan end

There are indications that Mr Akayev’s anti-corruption campaign could be run-ning out of steam. The meeting of the Security Council which sacked the re-gional governors and the head of customs opted to let more senior officials offvery lightly. The first deputy prime minister, Abdyzhabar Tagayev, and thedeputy prime minister, Bekbolat Talgarbekov, retained their positions despitebeing “strongly reprimanded” for “abuse of power” and “improper use ofgovernment funds”. Only three days before the reprimand, Mr Tagayev hadbeen put in charge of supervising the embryonic Kyrgyz capital market.Mr Akayev similarly criticised the governor of Chu province, Feliks Kulov, forthe same offences. Mr Kulov had been the vice-president of the Kyrgyz Republicbut resigned in December 1993 after a scandal involving the disappearance ofgold reserves from the central bank. However, there are several factors workingagainst the president’s attempts to stamp out corruption. First, corruption isendemic, and removing all corrupt officials would risk a backlash from withinthe state administration which could even threaten to force a coup againstMr Akayev. Second, as Mr Akayev’s critics have pointed out, the president wasoriginally responsible for appointing those whom he is now so publicly sackingor reprimanding. Third, the justice system in the Kyrgyz Republic simply cannotcope with the present volume of corruption cases. According to an interior

Kyrgyz Republic 11


ministry report, only six out of 200 officials indicted on corruption chargesbetween January 1993 and July 1996 are now serving custodial sentences.Finally, the justice system has itself been undermined by corruption. In thelatest round of dismissals on August 22 the president sacked seven Bishkekdistrict court judges. Mr Akayev then fired six district judges from Chu, Issyk-Kuland Naryn regions on September 9, followed on September 17 with the removalof ten judges from Dzhalalabad province.

There is some leniency forthe press

One of Mr Akayev’s most outspoken critics, Yrysbek Omurzakov, has had hispenal sentence suspended on appeal. Mr Omurzakov, a journalist from theRussian-language weekly Res Publika, was convicted on July 11 of criminal libeland sentenced to two years in a penal colony (3rd quarter 1996, page 9).However, the Naryn regional court accepted a plea to suspend the custodialsentence after Mr Omurzakov’s lawyers cited their client’s lack of a criminalrecord and need to support a family. International pressure also undoubtedlyplayed a role in securing Mr Omurzakov’s release. To Mr Akayev’s embarrass-ment, the human rights organisation, Amnesty International, had adoptedMr Omurzakov as a prisoner of conscience. In 1995 Mr Akayev won two crimi-nal libel suits against Res Publika, which has made a point of trying to revealcorruption in government (3rd quarter 1995, pages 26-27).

Economic policy

The budget deficitposition is unclear—

Data on the fiscal deficit, which in any event are not noted for their consis-tency, have become more sparse than usual. It is unclear if the deficit is withinthe target of 19.2% of GDP or if the concerns of the president, Askar Akayev,that the deficit has overshot the target are well-grounded (2nd quarter 1996,page 10; 3rd quarter 1996, page 10). In April parliament approved the budgetwith a deficit of 19.2% of GDP, excluding foreign grants and loans. Data fromthe Kyrgyz Republic State Statistical Committee (Goskomstat) claimed that thefirst-quarter deficit was only 2.1% of GDP.

—but spending is beingartificially squeezed

For the moment the government appears to be holding down the deficit bysimply not meeting its spending obligations. The central government has de-volved responsibility for paying wages to the health and education sectors tolocal government, without giving local authorities the means to meet theseobligations. On August 13 Mr Akayev declared that the wages of teachers andmedical professionals would be paid by local rather than central government,with wage arrears to be cleared by November 1. In the first seven months of 1996a total of Som324m ($26.5m) of wages were unpaid, with Osh and Dzhalalabadprovinces reported as having the highest levels of arrears. Mr Akayev has alsothreatened to hold governors and the heads of regional administrations person-ally liable for the failure to pay wages and benefits on time.

Cutting taxes seems riskyat present—

In an effort to increase tax compliance, the Ministry of Finance has decided tosimplify the tax code. The finance minister, Kemelbek Nanayev, announced onSeptember 16 that he wants to make 154 changes to the tax code, which wasonly adopted on July 1. However, some of the taxes to be abolished bring insuch a small amount of revenue that the costs of collecting the tax are probably

12 Kyrgyz Republic


larger than the tax returns; an example is the 0.8% road-user tax levied on theturnover of manufacturing and construction firms. Others, such as the 15% taxon interest from bank deposits, are counterproductive as they discourage sav-ings. What is needed to boost savings is a viable financial sector, competentregulation and savings vehicles in which the population can have confi-dence—none of which exist at present. Equally, it makes little sense for thegovernment to scrap the 20% value-added tax (VAT) levied on public utilities,as is planned, as it is one of the few taxes which is comparatively easy to collect.

—and a new duty on grainwill hurt exports

Following this year’s bumper grain harvest (see The economy), the authoritieshave decided to impose a 30% export duty on grain to be levied in the periodbetween August 25 and November 25. The export duty on grain is designed toboost state grain reserves by discouraging exports. The grain harvest appearslikely to reach 1.3m tons, which will more than meet domestic requirements,estimated at 850,000 tons. However, the duty will tend to depress export earn-ings at the very time when there are ready markets for the grain in bothTurkmenistan and Uzbekistan, which have had poor harvests. Selling the sur-plus wheat even for $150/ton would yield $67.5m in export revenue, equivalentto 4.9% of forecast GDP in 1996. The EIU is forecasting a wheat price of$230/ton in the fourth quarter of 1996 through to the end of the first quarter of1997, which would bring in much higher earnings.

Some anti-reformist ideasare being touted

The Kyrgyz Republic’s policy-makers are facing an unpleasant dilemma. Thecurrency, the som, has held its value far better than any other in Central Asia.Its strong real appreciation has kept down import prices and so contributed toreducing inflation. However, export growth has been disappointing and therise in the trade deficit is assuming alarming proportions. In this situation thecountry’s politicians appear to be reaching for the levers of state control. Theeconomy minister, Taalaybek Koichumanov, has argued that to ensure what heterms the Kyrgyz Republic’s “economic security”, the country’s exposure toforeign trade should be reduced. The minister has argued that in order to cutthe trade deficit the price of strategic commodities (grain and fuel) and exportsshould be taken back under state control. Moreover, contradicting the need forfiscal austerity, the deputy finance minister, Rafkat Hasanov, has included inthe draft 1997 budget a proposal to reimburse the population for savings lostsince 1993 due to high inflation. Such a proposal would provide a large short-term boost to the money supply, which would stoke inflation and wipe outwhat little would be gained from such compensation. Similarly, Mr Hasanovhas opposed making cuts in social expenditure in 1997. In practice this is likelyto mean that the Kyrgyz Republic will again renege on its commitment to theIMF to cut the fiscal deficit.

There are attempts toreform the financial

sector—

The government has announced more measures to reform the financial sectorfollowing the collapse of the country’s largest bank, the state-owned savingsbank, Kyrgyzelbank, in February (3rd quarter 1996, pages 11-12). First, thegovernment has increased local banks’ minimum capital requirements toSom10m, while the minimum capital requirement for foreign banks has beenincreased to Som20m. Second, the structure for regulating the capital market isto be simplified. To date the tiny capital market has been supervised by the

Kyrgyz Republic 13


National Bank of the Kyrgyz Republic (NBK, the central bank), the StateProperty Committee (GKI) and the State Securities Agency. However, as fromSeptember 9 the new National Commission for the Securities Market (NCSM)has assumed sole responsibility for regulating the capital markets; the StateSecurities Agency will become its executive branch. The head of the NCSM isthe first deputy prime minister, Abdyzhahar Tagayev. However, the aim increating the NCSM—to increase confidence in the regulatory framework—willnot have been helped by the official reprimand issued to Mr Tagayev three dayslater for “abuse of power” and “improper use of government funds” (see Thepolitical scene).

—and proposals to boostthe local stock exchange

On September 27 the State Securities Agency announced a three-year plan toboost interest in the local capital market. The plan will allow foreign stocks tobe traded on the local stock exchange and domestic companies to obtain aforeign listing. At present the Bishkek stock exchange lists only 25 firms and itsturnover is extremely low. In practice few, if any, foreign firms would considerlisting on the exchange and few local companies could meet the requirementsfor listing even on foreign emerging-market exchanges. The main problems inthe country’s capital markets remain poor regulation and a lack of liquidity. Toadd an extra impetus to the market the government has also announced plansto abolish taxes on revenue earned from investment fund activity.

Plans for a new savingsbond

The government has decided to respond to constant exhortations from the IMFto boost the low domestic savings ratio, which is estimated at around 20% ofGDP, by launching a state investment bond. The bond’s underlying assets willbe the state’s remaining stake in partly privatised firms. The money raised by thebond will then be ploughed back into these enterprises to help them restructureand invest. The dividends to the state from its minority stake in these firms willthen be passed on to the bondholders. In October the Ministry of Finance alsobegan to issue more traditional savings bonds, although to a value of onlySom60m per year. The savings bonds have a one-year maturity and have thesame yield as three-month Kyrgyz government Treasury bills. The yield onthree-month T-bills is around 30%, which in dollar terms implies a yield ofaround 16%. However, the bonds will be little more than savings accounts andno secondary market is planned. The new instrument is particularly aimed atsmall savers, with each bond worth Som100 ($8).

The economy

The economy has emergedrobustly from recession—

The recovery from the post-Soviet recession has continued apace, with realGDP up 3.1% year on year in the first eight months of 1996. However, thegrowth trend has been erratic. In the first quarter, real GDP rose 2% year onyear, while in the first half real GDP was up only 0.3% year on year. GDP overthe first eight months of the year was reported at Som12.01bn ($1bn). Mean-while, industrial output seems to be growing strongly, albeit from a very lowbase. First-half industrial production was up 13.2% in real terms on the corre-sponding period of 1995, which compares with year-on-year growth of 4.8% inthe first quarter of 1996.

14 Kyrgyz Republic


Kyrgyz Republic: trend of gross domestic product and industrial output(% real change, year on year)

1995 1996 Dec Jan-Mar Jan-Jun Jan-Jul Jan-Aug

GDP –7.7 2.0 0.3 1.5 3.1

Industrial output 1.6 4.8 13.2 n/a n/aSources: World Bank; IMF; CIS Goskomstat; Reuters.

—backed by a good grainharvest

Despite a slow start to harvesting because of colder weather than expected,the grain harvest has come in above expectations. By October 1 some 92% ofthe 497,900 ha sown to grain had been harvested, with output reported at1.14m tons. Of this total, output of wheat stood at 984,600 tons. The yield byOctober 1 was 2.5 tons per ha, 3.8% below the target yield for the year of2.6 tons per ha. The final grain harvest is expected to be close to the target of1.3m tons, up 32.7% compared with the total of 980,000 tons recorded in 1995.Domestic requirements of 850,000 tons of grain will be comfortably met.

Kyrgyz Republic: grain production(’000 tons)

1990 1991 1992 1993 1994 1995 1996a

1,519 1,396 2,136 1,610 1,060 980 1,300

a Target.

Sources: World Bank; CIS Goskomstat; BBC, Summary of World Broadcasts.

A seasonal fall in priceshas slowed inflation

As expected, the rise in prices slowed from June onwards, with the month-on-month inflation rate in August reported at just 0.5% (31% year on year). Foodprices in August declined by 1.4%, reflecting the usual seasonal trend associatedwith the onset of the harvest. However, inflationary pressures remain strongerfor manufactured goods, with producer prices rising by 2.8% in August, whilethe price of services climbed by 6.1%. August’s low inflation figure followed aneven better performance in July when prices actually fell by 2.1%, slowing theannual inflation rate in that month to 30%. Again, the cause was a seasonaldrop in food prices. Annual inflation is now back to its level in December 1995,but the rate is still above the target set by the IMF. Month-on-month inflationin the first eight months of 1996 averaged 2.2%, well above the 1.18% targetimplied by the country’s IMF programme. The cumulative inflation rate over the

-3

-2

-1

0

1

2

3

4

5

24

26

28

30

32

34

36

38

Jul . . . . . Jan . . . . . Jul .

Month on month, left scale

Year on year, right scale

Kyrgyz Republic: inflation

%

Sources: OECD, Economic Indicators: Transition Economies; IMF; Kyrgyz Republic Goskomstat.1995199519951995199519951995199519951995199519951995199519951995199519951995199519951995 1996199619961995 19961995 199619961995 19961995 19961995 19961995 19961995 19961995 19961995 19961995 19961995 19961995 1996199519951995199519951995199519951995 19961996199619961995 1996

Kyrgyz Republic 15


first eight months of the year stood at 19.2%, which was well above the 15.1%IMF target for 1996. To reach that target prices would have to fall by 0.86% permonth through September-December.

Kyrgyz Republic: inflation(%)

Month on month Year on year

1995Jul 0.4 37.4Aug –0.3 34.7Sep 2.5 37.8Oct 1.1 32.7Nov 2.6 32.1Dec 3.4 31.9

1996Jan 3.6 27.6Feb 3.8 24.0Mar 4.0 26.9Apr 4.6 31.7May 2.5 32.9Jun 1.0 33.3Jul –2.1 30.0Aug 0.5 31.0Sources: OECD, Economic Indicators: Transition Economies; IMF; Kyrgyz Republic Goskomstat.

Foreign trade and payments

The trade gap isunsustainable

The trade deficit has continued to widen at an alarming pace. In the first halfof 1996 the trade deficit amounted to $178.3m, a rise of 778% on the $22.9mtrade surplus recorded over the corresponding period of 1995. The trade deficithas dipped slightly from 19.8% of estimated GDP at the end of the first quarterto 19% of GDP by the end of the first half of 1996. By the end of August thetrade deficit had reached $233.7m, a huge increase of 769% compared with thesame period of 1995. In the first eight months of 1996 the trade deficit as aproportion of GDP had declined marginally to 18.7% of GDP, still well abovewhat the Kyrgyz Republic can finance.

Kyrgyz Republic: foreign trade($ m; fob)

19961994 1995 Jan-Mar Apr-Jun Jul Aug Jan-Aug

Exports 321.1 379.9 87.8 57.6 122.7 38.3 306.4

Imports –243.5 –462.6 –180.7 –143.0 –169.9 –46.5 –540.1

Balance 77.7 –82.7 –92.9 –85.4 –47.2 –8.2 –233.7Sources: Reuters; Kyrgyz Republic Goskomstat; EIU.

The Kyrgyz Republicfinally has the whip hand

over Uzbekistan—

After years of discriminatory trade practices by Uzbekistan, the disastrous foodsupply situation in its western neighbour has strengthened the Kyrgyz Republic’sposition. On August 15 the Kyrgyz Republic and Uzbekistan reached an agree-ment on the latter’s gas payment arrears. Uzbekistan had been threatening tocut off supply. Instead the two sides agreed that the Kyrgyz Republic will payoff 50% of its 1995-96 payment arrears in hard currency and the other 50% infoodstuffs.

16 Kyrgyz Republic


—and trade debts withKazakstan have been

cleared

Trade relations with Kazakstan continue to be noticeably more amicable thanthose with Uzbekistan. On September 23 the Kyrgyz Republic and Kazakstanagreed to settle outstanding trade arrears. Kazakstan will supply 450,000 tons ofcoal to the Kyrgyz Republic, which in return will supply electricity toAlmatyenergo (which supplies the Almaty region and city) and Yuzhkazenergo(which supplies electricity to southern Kazakstan).

Business news

• The EU is to provide Ecu320,000 ($406,000) to the Kyrgyz Republic to payfor medical supplies.

• The Kyrgyz Republic is to receive 7,000 tons of US hard red winter wheat ata cost of $181.47/ton.

Kyrgyz Republic 17


Tajikistan

Political structure

Official name Republic of Tajikistan

Legal system On August 31, 1991, the Soviet Socialist Republic of Tajikistan was renamed theRepublic of Tajikistan, and on September 9, 1991, it declared its independence fromthe Soviet Union. After civil war had broken out a special session of the Tajikparliament voted in November 1992 to abolish the presidency and create aparliamentary republic. The presidency was restored in a referendum on November 5,1994

National legislature A 181-seat unicameral parliament

Electoral system Universal suffrage over the age of 18

National elections February 26, 1995; next elections due by 1999 (legislative and presidential)

Head of state President, Imamali Rakhmonov, elected November 5, 1994

National government Council of Ministers, headed by a prime minister, who is nominated by the chairmanof the parliament and whose nomination must be ratified by parliament. Although theprime minister names his own Council of Ministers, most of the posts are at presentsinecures as many ministries exist only in name. The current government was formedon November 20, 1992, and most recently reshuffled in February 1996

Main political parties In the wake of the civil war, parties associated with the anti-Communist regime ofSeptember-November 1992 were banned; Socialist Party (former Communist Party);Islamic Renaissance Party (now banned); Democratic Party (now banned); Rastokhez(Renaissance; now banned); Party of People’s Unity and Accord; the National RevivalBloc

Parliamentary chairman Safarali RadzhabovPrime minister Yakhyo AzimovFirst deputy prime minister Yuri PonosovDeputy prime ministers Akil Akilov, Kadriddin Giyasov,

Bosgul Dodkhudoyeva, DzhamolidinMansurov, Kholisdzhan TemurdzhanovAbdurahmon Nazimov

Key ministers Agriculture Muso BarotovCommunications Nuridin MukhidinovDefence Sherali KhairullayevEconomy & planning Tukhtaboy GafarovEducation Munira InoyatovaForeign affairs Talbak NazarovInternal affairs Saidamir ZukhurovJustice Shavkat IsmailovSecurity Saidanvar KamolovTransport Faridun Mukhidinov

Central bank governor Murodali Alimordanov

18 Tajikistan


Economic structure


Economic indicators 1991 1992 1993 1994 1995a

GDP at current prices Rb bn 10.5 64.8 631.2 3,115.9 26,861.9

GDP at exchange rate $ bn 0.5 0.3 0.7 1.4 5.9

GDP at purchasing power parity $ bn 12.9 9.0 6.6 5.6 4.9

Real GDP growthb % –8.7 –30.0 –27.6 –15.0 –12.4

Consumer price inflation % 112 1,157 2,195 481 884


Exportsc $ m 3,701.0d 110.8 263.1 320.1 472.0

Importsc $ m 3,668.0d 132.2 373.8 317.7 353.0

Exchange rate Rb:$ (av) 22.0 220.0 932.0 2,191.0 4,640.0

The Tajik rouble (TR) was introduced on May 11, 1995 August 18, 1996 TR298:$1

Origins of net material product 1994e % of total Components of net material product 1991e % of total



Transport & communications 3.4 Gross fixed investment 6.7

Total incl others 100.0 Increase in stocks 8.7

Net exports –0.4

Losses 1.6

NMP 100.0

Composition of exports 1993f % of total Composition of imports 1993f % of total

Fuels, minerals & metals 99.0 Primary commodities 96.0

Manufactures 1.0 Manufactures 2.0

Total 100.0 Food 1.0

Total 100.0

Main destinations of exports 1994f % of total Main origins of imports 1994f % of total

Former Soviet Union 77.6 Former Soviet Union 54.6

Netherlands 8.7 Switzerland 14.9

Switzerland 2.6 UK 10.4

Belgium 1.8 USA 4.9

UK 1.6 Netherlands 2.5

a EIU estimates. b Real GDP growth rates for 1991-94 are based on series from the World Bank’s Statistical Handbook: States of the Former USSR.Data for 1995 are from the CIS Goskomstat. c Trade outside the former Soviet Union. d Rb m; valued at domestic prices which represent internalprices originally set under the centrally planned economic system, and are thus significantly below world market prices. e World Bank estimates.f Percentage of all trade.

Tajikistan 19


Outlook for 1997-98

Peace talks give somescope for optimism

After several months of intermittent contact between the government ofImamali Rakhmonov and the Tajik opposition forces, who fled to Afghanistanafter losing the 1992 civil war, the UN is now sponsoring a new round ofpeace talks in Tehran. These talks represent the first face-to-face contact sincenegotiations in Ashgabat in Turkmenistan in mid-1996. The UN envoy toTajikistan, Gerd Merrem, has expressed hopes that these talks will yield a newceasefire agreement and terms for the exchange of prisoners, which could pavethe way for a broader political settlement. However, it remains unclear whethereither side has any genuine interest in reaching an agreement, not least becausethe recent upsurge of fighting in Afghanistan is threatening to shake the geo-political balance in the region.

The fighting inAfghanistan leaves theopposition in limbo—

The recent upsurge of fighting in Afghanistan has left the opposition in adelicate political position and uncertain about its future allegiances. The captureof Kabul in September by the Islamist militia, the Taliban, initially fuelled specu-lation that the Tajik opposition might seek some military support from theTaliban. Indeed, the two groups share a common opposition to Communistregimes, and the success of the Taliban has won admiration from some Tajikfactions within the opposition. But in practice an alliance between the twoseems unlikely. The opposition forces have bases in north-eastern Tajikistan, interritory under the control of Ahmed Shah Massoud. Mr Massoud, an ethnicTajik, has hitherto been vehemently opposed to the Taliban. Iran, which hasprovided help for the Tajik opposition, is also critical of the Taliban. Never-theless, the opposition forces may wish to keep their options open until itbecomes clear which side, if any, achieves victory in Afghanistan. Conse-quently, they may also be reluctant to commit themselves to any binding agree-ment with the Tajik government.

—and will bolster thegovernment’s confidence—

Following the Taliban advance, some diplomats had hoped that the fear ofunrest on its southern borders might prompt the Tajik government into a moreflexible position. But the events appear to have left the government feelingmore confident and hence less willing to reach a political settlement. This isbecause the Tajik government currently relies on Russian military support tomaintain it in power. For its part, the Russian military has responded to thelatest conflict by reaffirming its commitment to guarding the Tajik-Afghanborder against any incursion, either from the Taliban or the Tajik opposition.Worldwide concern about the “fundamentalist” threat in Afghanistan has alsoleft the government more confident that it can win sympathy from regionalleaders for its own fight against its “fundamentalist” opposition.

—increasing the chancesof further military

skirmishes—

The onset of cold weather has in the past reduced the intensity of the conflictbetween the two sides. However, fighting earlier in the year has left the oppo-sition in effective control of large swathes of territory. Indeed, some Westernmilitary observers suspect there are now more Tajik opposition fighters basedin Tajikistan than in Afghanistan. The opposition controls the mountainsaround the strategically important Tavil-Dara area, which links the Pamir re-gion with Dushanbe. It also holds part of the Garm valley region. Although a

20 Tajikistan


ceasefire was recently signed between the two sides, further skirmishes cannotbe ruled out. While the actual military strength of opposition is no more thana few thousand fighters, and thus there is little likelihood of them seizing largertracts of land, the opposition is increasingly well-organised and will not beeasily dislodged from the territory it already controls.

—while Russia willremain a key player

The prospects for a military solution to the conflict still rest on the position ofRussia, which has the largest military contingent in the Commonwealth ofIndependent States (CIS) force policing the Tajik border with Afghanistan.Russia has also provided military assistance to the Tajik government againstthe opposition. However, despite Russian fears that the recent success of theTaliban in Afghanistan will be followed by a rise of Islamic fundamentalism inCentral Asia, there is little evidence that the Russian military is willing tointervene decisively to bring a solution to the Tajik civil war. In particular,while some government officials in Moscow, most notably in the Ministry ofForeign Affairs, would like to see a speedy end to the dispute in Tajikistan,many in the Russian military see a continuing low-level conflict along Russia’sborders as working in its own favour, by strengthening its case for more re-sources. Also, given the recent debacle in Chechenya, and with memories ofthe failed Soviet intervention in Afghanistan between 1979 and 1989, theRussian military is unwilling to get involved in a large-scale conflict which itwould be uncertain of winning.

The government will faceother political challenges

The Tajik government will probably face challenges from other political fac-tions in the republic. In particular, the split between the Kulyabi factionheaded by Mr Rakhmonov and Tajiks from the northern regions of Khodjentcould deepen. A former Tajik prime minister from Khodjent, AbdumalikAbduladjanov, has recently formed his own political party, the NationalRevival Bloc. Mr Abduladjanov ran against Mr Rakhmonov in the 1994presidential elections, and is considered a key potential opponent.Mr Rakhmonov has responded to Mr Abduladjanov’s move by calling for hisarrest, on alleged “corruption” charges. This has fuelled anti-Kulyabi sentimentin the north. Senior Khodjent officials are reported to be particularly irritatedby Mr Rakhmonov’s refusal to reach an agreement with the opposition.

Food supply will remain aproblem in the short

term—

In the short term the economic situation in the republic is likely to remain dire.The Tajik government recently conceded that GDP has fallen by about 60%since the onset of the post-Soviet recession. The cotton harvest this year hasbeen poor, with output running at one-third of the level achieved at the end ofthe 1980s. Since cotton is a key hard-currency earner, the country may facedifficulties purchasing badly needed food imports in the coming months. Theother key export sector, aluminium, is also deeply troubled, and output seemslikely to decline. Consequently, the coming winter is likely to be another diffi-cult one for the population, and aid agencies are warning of potential foodshortages. In most parts of the country, the food situation remains fairly good,not least because food supply has been boosted by an expansion of grain prod-uction over the last year. However, pockets of food deprivation are emerging,and the World Food Programme now estimates that 85% of the population isbelow the poverty line.

Tajikistan 21


—while the civil war willcontinue to delay the

onset of recovery—

In terms of the forecast the EIU assumes that the civil war will drag on at lowintensity for the duration of the forecast period, which will disrupt productionand cause a continued decline in real GDP. Real GDP is hence forecast todecline by 7.5% in 1997 and 5% in 1998. The slowing in the rate of decline isexpected to be driven by improving trade relations with other former Sovietrepublics which should be emerging from recession in 1997-98. However, withfood supply remaining tight, inflation will only slowly moderate and willremain in triple digits for the duration of the forecast period. A continueddependence on energy imports from other former Soviet republics will keep theoverall trade balance in deficit, although a trade surplus with other regions isexpected to be maintained, even increasing slightly in the latter part of theforecast period as the country becomes more accessible to foreign business.

—although there is somecause for optimism

However, there are some encouraging signs. The World Bank is poised to beginits programme after agreeing a $50m loan; this should include a new initiativeaimed at boosting privatisation. The government also appears committed toupholding the reform programme agreed with the IMF earlier this year (whichis supported by a $22m loan). This envisages maintaining a tight control overmoney supply and public finances, coupled with the adoption of liberal trade,foreign exchange and price regimes. Meanwhile, inflation has been steadilylowered. The government is also committed, at least on paper, to reducing thebudget deficit to below 6% of GDP this year. This compares with previousdeficits of over 20% of GDP.

Tajikistan: forecast summary(% change year on year unless otherwise indicated)

1995a 1996b 1997b 1998b

Real GDP –12.4 –10.0 –7.5 –5.0

Industrial production –13.5c –11.0 –8.0 –6.0

Consumer prices 884 400 250 150

Trade balanced ($ m) 119.0 100.0 110.0 150.0

Average exchange rate (TR:$) 175 290 370 420

a EIU estimates. b EIU forecasts. c Estimate of CIS Goskomstat. d Non-CIS trade only.

Review

The political scene

Skirmishes continuebetween the opposition

and the government—

The longrunning military skirmishes between the Tajik opposition and thegovernment flared up again in recent months. The latest round of fightingstarted when opposition forces attacked the Tavil-Dara region. They eventuallyseized the strategically important town, which links the Pamir region withthe centre of Dushanbe. The government responded by launching a strongcounterattack, and in mid-1996 reasserted its control over the centre of thetown. According to reports from the International Red Cross, the fightingcreated 7,300 refugees. Reports also suggest that the area around Tavil Dara hasbeen mined. A ceasefire is now supposed to be operating in the area which UN

-32

-28

-24

-20

-16

-12

-8

-4

0

1991 92 93 94 95(a) 96 97 98

Tajikistan: gross domestic product% change, year on year

(a) EIU estimate. Source: EIU.


22 Tajikistan


military observers are attempting to monitor. But the opposition forces remainin control of the areas surrounding Tavil-Dara and skirmishes have continued.

—extending to the Garmvalley—

The Garm valley has also been the site of fresh attacks. The opposition staged anew assault in the area and seized effective control of part of the valley. Thegovernment responded by agreeing to sign a ceasefire settlement on September15; this move probably reflected a shrewd acknowledgement that it could notpush the opposition from the valley. Meanwhile, in another sign of the govern-ment’s unease about the situation it expelled six aid workers from the Garmregion in early October. The government claimed that the group, who wereworking with Shelter and the International Red Cross, had been spying andsmuggling precious stones.

—but peace talks startagain

Intermittent peace efforts have nevertheless continued, with the last peacetalks held in Ashgabat in mid-July (3rd quarter 1996, page 23). The capture ofthe Afghan capital of Kabul by the Taliban in September gave a new spur topeace efforts. In particular, the UN envoy to Tajikistan, Gerd Merrem, arguedthat the Afghan turmoil should force both sides to be more flexible. Afterextensive preparations, new negotiations started in mid-October in Tehran.These talks aim to reaffirm the ceasefire agreements, create the framework for aprisoner exchange, and lay the groundwork for a broader political settlement.Both the head of the Islamic opposition, Sayed Abdullo Nuri, and the Tajikpresident, Imamali Rakhmonov, are due to attend.

The Taliban’s capture ofKabul is condemned by

Dushanbe—

The upsurge of fighting in Afghanistan in September caused much unease inTajikistan. Mr Rakhmonov was one of the first regional leaders to condemn theTaliban following their assault on Kabul. Senior Tajik and Russian sourceswarned of the danger that the Tajik opposition might try to forge an alliancewith the Taliban. But although Mr Rakhmonov attended a meeting of CentralAsian regional leaders in Almaty in early October, he kept quite a low profile.In contrast to the president of Uzbekistan, Islam Karimov, Mr Rakhmonov didnot call for military support for any Afghan faction. Instead, his main focussince the Taliban assault has been on the Tajik-Afghan border. In recent weekshe has reiterated the need for further reinforcements on the border, andwarned that without these a flood of “guns, terrorists and drugs” could sweepup from the south. In October the Tajik foreign minister, Talbak Nazarov,called on the UN to grant the Commonwealth of Independent States (CIS)“peacekeeping” forces on the Tajik-Afghan border the status of a UNpeacekeeping mission.

—and is used by theRussian military to

bolster its position—

These alarmist calls appear to have been heeded by the Russian military, whicheffectively controls the 15,000-plus Tajik and Russian force in the republic. Inthe aftermath of the Taliban victory, some Russian military officials warned thatthe Taliban could soon “threaten” Central Asia. These warnings were sub-sequently downplayed. However, reports suggest that the Russian military hasused the fighting in Afghanistan to plead for more financial support from theirown government. Some outside military observers also believe that the Russianshave sent reinforcements to the border. However, these reinforcements are not

Tajikistan 23


thought to be the forerunner of an outright military assault by the Russianmilitary on the Tajik opposition.

—while the opposition hasso far refused to take sides

The Tajik opposition, by contrast, has largely refrained from commenting onthe Afghan situation. Shortly after the Taliban seized Kabul, some Russianmedia reports claimed that an opposition leader, Davlat Usmon, had expressedsupport for the Taliban. However, these reports probably stemmed fromRussian or Tajik government sources. In mid-October the opposition issued aformal statement denying any links with the Taliban and insisting that itwished to maintain friendly relations with all Afghan groups, not least because“our refugees are spread across this country”.

Links between Tajikistanand Iran become strained

Links between the Rakhmonov regime and Iran have become slightly morestrained in recent months. In September the two countries engaged in a tit-for-tat expulsion of diplomats after the Tajik government accused an Iranianofficial of spying. The move followed an earlier attack on an Iranian diplomatby unknown gunmen. Although the Tajik government insists that the matteris now finished, the move is also believed to reflect Mr Rakhmonov’s irritationwith Iran’s support for the Tajik opposition.

Economic policy

The government sticks toits economic reform

programme—

In spite of the myriad of problems, the government appears committed tosticking to the market reform programme agreed with the IMF earlier this year.Western officials say that inflation appears to be generally under control, andcontinued efforts are being made, albeit patchily, to reform governmentfinances. Meanwhile, discussions are under way over a new World Bankprogramme, following the approval of a $50m loan. The prime minister, YakhyoAzimov, travelled to the USA in September to discuss details of the programme,which is expected to include help for agricultural reform. The government haspreviously indicated that it plans to break up most state farms. However, effortsto create a private land market remain deeply unpopular in the republic, andTajik officials have indicated that agricultural reform is likely to proceed slowly.The World Bank programme is also expected to feature a new privatisationproject. Some ground has already been laid for this by a new privatisation lawthat was passed in late August. This creates an independent privatisation body,which will oversee the sell-off of state assets, and offers foreign investors thechance to purchase bankrupt enterprises in the republic.

—and aims to expandantimony production

The government has indicated that it hopes to expand the production ofantimony. The Ministry of the Economy reported in September that it plannedto transform a state-owned factory in the Isfara region into an antimony-processing plant, producing up to 300 tons/year. Although Tajikistan has largeantimony reserves, it has hitherto sent antimony concentrate to other repub-lics for processing.

24 Tajikistan


The economy

GDP continues to decline— Fresh indications of Tajikistan’s economic plight have emerged in recentmonths. In early October the prime minister, Yakhyo Azimov, told a conferenceof donors in Dushanbe that GDP had fallen by 60% in the last four years, andwas continuing to fall. He also claimed that most enterprises in the country areworking at less than one-third of capacity, while cotton and aluminium outputhad halved. Such estimates may exaggerate the picture. Official statistics excludemost private-sector activity, which is currently the most vibrant part of theeconomy. The overall data also fail to highlight regional differences; althoughthe southern regions have seen a sharp economic decline, the northern areaaround Khodjent presents a healthier picture. Nevertheless, most economistsexpect that the economy will continue to contract, at least this year and next(see Outlook).

—as aluminiumproduction falls—

Aluminium production has suffered in recent months. In mid-August an out-break of fighting between rival gangs around the aluminium plant in Tursun-Zade left several people dead, and hit production. Local officials insist that thefighting did not have an ethnic or political basis, but instead reflected aneconomic battle for control of the plant and its key hard-currency earnings.This explanation is credible: a key factor behind the country’s instability is thebattle between gangs for control over its resources. Aluminium exports usuallyprovide about $20m of exports each month. Production is also being affectedby a shortage of materials and energy. In September Tajik officials indicatedthat the plant was only working at about 45% of capacity. They also reportedthat the plant owed about $100m in electricity bills. The smelter revised itsforecast for 1996 production down to 200,000 tons, from a previous forecast of240,000 tons. This is below the 1995 level of 236,000 tons, and sharply downfrom production levels in the late-1980s. Some Western observers believe thateven this forecast is over-optimistic. Tajik officials hope privatisation couldprovide an answer to the plant’s problem, and have submitted new plans to theTajik government which are aimed at attracting foreign investment. However,no firm deals have yet been agreed. Meanwhile, the World Bank has suggestedthat the plant should be closed.

—while the cotton harvesthas been poor—

Cotton production continues to disappoint. Senior Tajik officials have recentlyindicated that they expect a harvest of 360,000-390,000 tons of raw cotton thisyear. Some Western cotton experts think 300,000 tons is a more likely figure.But even if the official level is met, this is well below both the target level of450,000 tons and last year’s harvest of 417,000 tons. It is also well below thelevel of production in the late 1980s, of around 800,000 tons. The governmentblamed bad weather for the poor harvest. In particular, heavy rains in Septemberare believed to have destroyed part of the crop. But the key reason for theshortfall appears to be continued shortages of agricultural inputs. A trade publi-cation, Cotton Outlook, reports that most operations have been conducted byhand, due to a shortage of tractors and fuel. The government has indicated thatit hopes to tackle these problems by introducing new incentives for privatecotton production. In particular, it announced earlier this year that cottonproducers would have the right to export part of their cotton crop directly,

Tajikistan 25


rather than sell it to the state. In practice, any changes do not appear to havetrickled down to farmers.

—and the grain situationremains difficult

The problems in the two key hard-currency earning sectors mean that therepublic may face difficulties in purchasing sufficient supplies of grain in thecoming months. Tajikistan is estimated by aid agencies to need on average atleast 800,000 tons/year (t/y) of grain (or 500,000 t/y of flour). The governmentclaims the domestic requirement is 1.2m tons. According to diplomaticsources, last year Tajikistan imported about 390,000 tons of flour, of whichabout 175,000 tons consisted of food aid. The rest was largely purchased fromKazakstan with cash. However, this year high grain prices and a lack of hardcurrency have reportedly created shortages of grain. The government has triedto tackle this problem by encouraging the expansion of wheat cultivation. Forthis year it set a grain harvest target of about 600,000 tons. However, by the endof August less than 200,000 tons had been brought in, and the Ministry ofAgriculture admitted that the total harvest was likely to be only two-thirds oftarget. Officials estimate that they will need to purchase an additional600,000 tons of grain to supplement this. Some 55,000 tons of grain is ex-pected to be supplied by the USA, with 65,000 tons provided by the EU. Inaddition, the government has been trying to encourage “private commercialstructures” to import flour. Despite this the grain supply situation is reportedto have remained patchy.

Living standards remainlow

Living standards remain low. The World Food Programme has estimated that85% of the population are now below the poverty line. Although most parts ofthe republic have adequate food supplies, pockets of malnutrition have beenreported. The problem has been exacerbated by the continued failure of thegovernment to pay salaries, benefits and pensions in full and on time. Thereare also new concerns about the health situation, following reports of a recentoutbreak of typhoid. In September the European Commission announced thatit would provide Ecu1.1m ($1.4m) for the purchase of medical equipment tocombat the risk of a typhoid epidemic spreading through the country.

The trade picture isconfused

Earlier this year the government announced that it was lifting trade barriersand export quotas for most products. However, the system remains open tocorruption. In October Tajik officials reported that over 17,000 tons of cottonand about 100,000 tons of aluminium have been “illegally exported” so far thisyear. These illegal exports indicate that official trade data are likely to be highlyunreliable. However, the IMF’s Direction of Trade Yearbook reports that exportsby Tajikistan totalled $368m last year, up compared with $312m the previousyear, and double the 1993 figure. Russia accounted for almost half of theseexports. Outside the Commonwealth for Independent States (CIS), Italy andthe USA were the main export destinations. The level of imports was $369m,almost identical to the level of exports. Russia, unsurprisingly, accounted forthe largest proportion of imports.

Energy shortages continue The energy supply situation remains difficult. Large parts of Dushanbe havebeen without gas. The state-owned Tajik gas company blames the problem onhouseholds’ gas arrears, which it claims now top TR1bn ($3.4m). Other officials

26 Tajikistan


have indicated that the republic is facing problems in settling its debts withUzbekistan for previous gas supplies. Electricity supplies to the country havealso been erratic in recent months.

Some efforts are now being made by the government to tackle the problem,partly as a result of prompting from the international donor community. Inearly October local media reports claimed that a small hydroelectric plant hadbeen reopened in the northern Leninabad region. The project was reportedlybacked with a mixture of public and private finance, and was presented as anexperiment in the partial “privatisation” of the energy sector. Meanwhile, inSeptember local media reports claimed that the republic had discovered a newgas deposit, in the Khatlon district, of over 1bn cu metres, which might besufficient to supply the Kulyab area for several decades. The reports added thatthere were further fields now being explored. However, developing the fieldsis likely to prove difficult, given the lack of hard-currency resources andinvestment.

Tajikistan 27


Turkmenistan

Political structure

Official name Republic of Turkmenistan

Legal system Turkmenistan became a constituent republic of the Soviet Union in 1924. In March 1991 some 95% of the population voted to keep the Soviet Union intact.The president, Saparmurad Niyazov, declared Turkmenistan’s independence inDecember 1991. A new constitution concentrating power in Mr Niyazov’s handscame into effect in May 1992

National legislature The Khalk Maslakhty (People’s Council) is the ultimate representative body, whichmust meet once a year. The Mejles (National Assembly) is the main legislature. TheCouncil of Elders and Cabinet of Ministers are theoretically subordinate to the KhalkMaslakhty, but in practice Mr Niyazov’s power is absolute


National elections Presidential election in which Saparmurad Niyazov was the sole candidate was held onJune 21, 1992. The last parliamentary election took place on December 11, 1994; nextelection due by January 2002 (presidential)

Head of state The president, Saparmurad Niyazov

National government Cabinet of Ministers, headed by a chairman, who is named by the president.Mr Niyazov is currently both the prime minister and the president. The presentgovernment was formed in June 1992

Main political parties In December 1991 the Turkmen Communist Party changed its name to theDemocratic Party of Turkmenistan. A government-sponsored opposition party, thePeasant Justice Party, was formed in July 1992. All other political parties are banned.Two Ashgabat-based opposition groups, the Democrat Party and Agzybirlik (Unity),many of whose supporters now live in Moscow, are also politically active

Prime minister Saparmurad NiyazovDeputy prime minister & minister of economy & finance vacantDeputy prime minister & minister of foreign affairs Boris ShikhmuradovDeputy prime minister & minister of education Muhammet AbalakovDeputy prime ministers Batyr Sardaev, Orazgeldy Aidogdyev

Khyakim Ishanov, Yagmur OvezovMatkarim Rajapov, Rejep SaparovIlamean Shikhiev

Key cabinet ministers Agriculture Ata NobatovDefence Danatar KopekovForeign economic relations Mered OrazovInterior Kurbanmukhamed KasimovOil & gas & mineral resources Gochmurad Nazdhanov

Central bank chairman Hudayberbi Orazov

28 Turkmenistan


Economic structure



GDP at current prices Rb bn 15.0 82.0 2,372.0 200.0b 2,721.0b

GDP at exchange rate $ m 8.8 0.4 2.6 2.7 5.4

GDP at purchasing power paritya $ bn 11.1 10.5 9.5 7.6 6.9

Real GDP growthc % –4.7 –5.3 –10.0 –20.0 –9.3

Consumer price inflation % 103 493 3,102 2,400 1,262


Exportsd $ m 7,906e 908 1,049 412 564

Importsd $ m 5,497e 30 502 328 92

Exchange rate Rb:$ (av) 22.0 220.0 930.0 75.0f 500.0f

October 18, 1996 Manat4,060:$1

Origins of net material product 1993g % of total Components of net material product 1990g % of total




Total incl others 100.0 Increases in stock 9.5

Net exports –18.3

Losses 14.8

NMP 100.0

Principal exports 1992e % of total Principal imports 1992e % of total

Oil & gas 75.2 Agricultural & food production 32.8

Electricity 2.6 Machinery & equipment 22.3

Food industry 2.4 Light industry 7.9

Chemicals 1.1 Metallurgy 7.0

Light industry 0.6 Chemicals & products 4.7

Main destinations of exports 1990h % of total Main origins of imports 1990h % of total

Germany 11.4 Germany 25.4

Other EU 11.4 Other EU 4.2

Bulgaria 9.3 Poland 9.0

Czechoslovakia 7.1 Czechoslovakia 8.1

Other eastern Europe 17.1 Other eastern Europe 18.7

a EIU estimates. b Manat bn. c Rates for 1991-94 are based on series from the World Bank’s Statistical Handbook: States of the Former USSR. Datafor 1995 are from Turkmenistan Goskomstat. d Trade outside the former Soviet Union. The figures cited are those given in the OECD’s Short-termEconomic Indicators: Transition Economies. e Total trade. Data derived from World Bank estimates. f Official rate for the manat. g World Bankestimates. h Percentage of all trade outside the former Soviet Union. Trade with other Union republics accounted for 85.8% of Turkmenistan’sexports and 83.8% of its imports in 1991.

Turkmenistan 29


Outlook for 1997-98

Expectations are unlikelyto be fulfilled—

The president, Saparmurad Niyazov, has been able to retain his grip on power,despite a precipitous decline in living standards in the wake of the post-Sovietrecession, by maintaining tight political control and promoting a Soviet-stylecult of personality. However, the recent upturn in gas production and theforecast 10% growth in real GDP in 1996 is likely to boost the population’sexpectations for improved living standards. Meeting these expectations, partic-ularly over the longer term, will be dependent on whether growth can besustained. Yet sustaining growth over the longer term will be dependent on theability of the regime to use the window of opportunity provided by the recentsurge in gas production to restructure the economy. Thus far the Niyazov regimehas given little evidence of its willingness to implement substantial economicreforms. Indeed, rather than using the additional resources for investment theregime has embarked on a number of grandiose construction projects, includingthe construction of a new presidential palace, which are unlikely to improve thelonger-term competitiveness of the economy. Should the regime fail to deliversubstantial improvement in economic well-being for the population in the nearfuture, a domestic political backlash cannot be discounted.

—as the regime isincreasingly isolated

In reflection of the erratic and often irrational rule of Mr Niyazov, most foreigncountries have given up on Turkmenistan. The two major exceptions areFrance and Iran. France is still interested in retaining good relations as itscontractors are owed money by the Turkmen government. Iran has also at-tempted to maintain close ties with Ashgabat, despite clear misgivings on bothsides, as Turkmenistan is allowing Tehran limited involvement in CentralAsian oil and gas—a sector which the Iranians have been shut out of in everyother republic. Meanwhile, Mr Niyazov is reinforcing Turkmenistan’s isolationby taking odd foreign policy stances which call his judgment into question. Heequivocated on whether to back the Russian president, Boris Yeltsin, in thesecond round of the Russian presidential elections in July. While the generalreaction within the Commonwealth of Independent States (CIS) to events inAfghanistan has been to express concern over the recent military successes ofthe Taliban and to try to forge a common position on the problem, Mr Niyazovhas remained conspicuously neutral about the Taliban. His stance would seemto be linked to Ashgabat’s plans to build an oil and gas pipeline to Pakistan viaAfghanistan. However, given the obvious instability in Afghanistan, this planis very unlikely to be carried out.

Growth will be high, butunsustainable—

This year the economy is the fastest growing in the former Communist bloc,with GDP expected to increase by 10%. However, given the lack of structuralreform, this surge from a low base is unlikely to last. The tendency for thegovernment to put off vital economic reform whenever the economy’s pros-pects improve has been confirmed in recent months. Whereas late last yearMr Niyazov declared that 1996 would be “a year of fundamental reform”, nowthat gas production is booming reforms are being deferred.

To maintain high growth rates in the future, Turkmenistan desperately needsinvestment, both domestic and foreign. However, the government’s confiscatory

30 Turkmenistan


currency reform of 1993 and negative real interest rates have created strongdisincentives to save or to hold manat assets, depressing the domestic savingsratio, while shoddy treatment of foreign investors means that Turkmenistan isnot likely to be able to tap foreign savings.

—and inflation willremain a problem—

While rapidly growing earnings from gas exports have apparently allowedbudgetary equilibrium—meaning that there is little or no deficit to monetise,removing one source of inflation—prices are still rising substantially fasterthan elsewhere in the region. The country is suffering from a shortage of grain,there have been frequent cuts in the supply of utilities and there is still ashortage of hard currency.

—although the currentaccount will remain in

surplus

No recent data are available on the balance of payments but the EIU believesthat the current account is in surplus and will remain there, at least in the shortterm. The surplus on recorded trade is likely to reach $500m, or 8.3% of GDP,this year. Surging gas exports are expected to reach 30bn cu metres in 1996,yielding $1.26bn in export earnings, although much of this will be in the formof barter. Slightly offsetting this gas-led surge will be the fall in cotton exports,reflecting both a very poor crop and a 15.9% fall in world cotton prices. Exportearnings from cotton could be as low as $250m. On the import side, the poorgrain harvest could necessitate grain imports to a value of $150m.

However, the favourable external position masks severe structural problems.Exports are paid for largely with barter as opposed to hard currency, while thelargest category of imports, for which there is little information, remains con-sumer goods. With inflation likely to be running ahead of the nominal depre-ciation in the currency, the manat, the currency will appreciate in real terms,sucking in yet more imports of consumer goods.

Turkmenistan: forecast summary(% change year on year unless otherwise indicated)

1995a 1996b 1997b 1998b

Real GDP –9.3 10.0 5.0 4.0


Consumer prices 1,262 800 400 200

Trade balancec ($ m) 472 500 450 400

Average exchange rate (Manat:$) 500 3,500 5,000 6,000

a EIU estimates. b EIU forecasts. c Non-CIS trade only.

Review

The political scene

Ashgabat responds calmlyto developments in

Afghanistan—

Although the capture of Kabul by the Islamist militia, the Taliban, onSeptember 27 encouraged the other Central Asian republics to convene anemergency summit with Russia on October 4, the response of Turkmenistanwas muted. Turkmenistan declined the offer of a seat at the summit and hassince pursued an independent foreign policy stance on Afghanistan, arguing

-20

-15

-10

-5

0

5

10

1991 92 93 94 95(a) 96 97 98

Turkmenistan: gross domesticproduct% change, year on year



Turkmenistan 31


that the Taliban pose no real threat to Central Asia. Turkmenistan’s con-ciliatory view of the Taliban appears to be based on the fact that the militia hasgiven its backing to the Unocal-Delta pipeline project which plans to build oiland gas pipelines from Turkmenistan to Pakistan via Afghanistan. Pakistan,which is widely believed to be supporting the Taliban, has also taken asanguine view of the militia’s capture of Kabul. On October 7 Turkmenistanand Pakistan said that they were in complete agreement over events inAfghanistan and called for non-interference in the country’s internal affairs.

—putting it at odds withthe rest of Central Asia—

Another factor explaining Turkmenistan’s refusal to attend the Almaty summitwas the personal animosity between the president of Turkmenistan, SaparmuradNiyazov, and his Uzbek counterpart, Islam Karimov. Mr Niyazov has in thepast made a point of avoiding attending events which might lend support toMr Karimov’s quest to become the region’s dominant political figure. However,the other Central Asian republics were mystified by Mr Niyazov’s failure toshow solidarity with them. Indeed, of the three Central Asian republics whichhave a common border with Afghanistan (the other two are Tajikistan andUzbekistan), Turkmenistan has the longest.

—and Iran While the other Central Asia republics have grown accustomed to Mr Niyazov’smaverick behaviour, Iran, Turkmenistan’s supposed ally, is thought to havebeen annoyed by the president’s reaction to the capture of Kabul. Viewed fromTehran, the capture of Kabul by the Taliban is nothing short of a disaster. Iran’smedia have faithfully reflected the government line, alleging that the Talibanare under Pakistani, Saudi Arabian and US influence. For Tehran, the fact that a USoil company, Unocal, has tried to be upbeat about developments in Afghanistansimply confirms the Iranian view that the Taliban are US-influenced (see Oiland gas).

Popular discontentgrows—

Sources in Turkmenistan indicate that popular anger at Mr Niyazov’s handlingof the economy has almost reached boiling point. Despite a surge in gas prod-uction in 1996, the benefits have yet to be seen by the bulk of the population.There are widespread food shortages and massive wage arrears. Utilities, sup-posedly supplied free of charge to the population, are now frequently cut off.In August in Mary district, the centre of the gas industry, gas supplies were cutto all but residential customers. Observers have also noticed how Mr Niyazov isnow rarely seen in public, which is perhaps a self-acknowledgement of his ownunpopularity, as well as a realisation that now that the economy is growingagain, popular expectations are rising. In an attempt to manage expectations asto the likely benefits of the economic boom in 1996, Mr Niyazov told viewersof Turkmen state TV: “Not everyone can be rich. Usually one in ten is rich andthe other nine must work for him.”

Mr Niyazov has tried, as usual, to shift the blame for the country’s economicproblems onto his subordinates. One reason for the current food shortages isthat Turkmenistan has had another poor grain harvest. To allay popular anger,on August 3 Mr Niyazov sacked the regional governors of the provinces ofAkhal and Tashauz on account of the poor harvest. In a move designed tolower the prestige of regional governors so that they cannot compete with him,they have also all lost their ex officio deputy prime minister status.

32 Turkmenistan


—and signs of dissent mayhave emerged in the

cabinet

Dissent against government policies appears to have surfaced in the cabinet,which Mr Niyazov also heads in his supplementary role as prime minister. OnAugust 23 it was announced that the deputy prime minister and minister ofeconomy and finance, Valery Otchertsov, had been transferred to the post ofeconomic attaché at Turkmenistan’s Moscow embassy. The official explanationwas that Mr Otchertsov had “matrimonial problems”, which is an odd reasonfor demotion and de facto exile. It is more likely that Mr Otchertsov, regardedas one of the more liberal members of the government, expressed his concernsat the disastrous results of economic policy.

Mr Niyazov explains whyhe backed down on life

presidency

Having failed in his attempt to become president for life (4th quarter 1995,page 49; 3rd quarter 1996, page 32), Mr Niyazov has now indicated that hewas never actually interested in assuming such a position. The plan to makeMr Niyazov president for life was first floated at the end of 1995 and he was tohave assumed the mantle in the first half of 1996. Mr Niyazov’s explanationcame in a speech in Bayram Ali to a joint session of the Khalk Maslakhty (thehighest representative body which meets annually), the Council of Elders andthe Second Congress of the National Revival Movement, all of whose membershave been hand-picked by the president. Mr Niyazov claimed that he haddeclined the chance of becoming president for life in order not to breach theconstitution; this sets a limit of two five-year terms for the presidency. How-ever, it is more likely that the president decided not to risk holding anotherrigged referendum at a time of considerable popular discontent. The last refer-endum, in January 1994, produced a suspicious, Soviet-style 99.9% vote infavour of cancelling the 1997 presidential polls and keeping Mr Niyazov inoffice until 2002. Although he has clearly backed down on his attempt atbecoming president for life, Mr Niyazov has kept the option open by sayingthat the issue will not need to be resolved until 2002.

Another violent prisonmutiny

Turkmenistan has suffered its second violent prison mutiny in two years. Theriot exploded in Mary prison on August 4. The authorities claim that prisonerson death row took warders hostage in a failed escape attempt. The authoritiesthen stormed the prison, killing two prisoners, while a third committed suicideand seven were injured. The figures probably understate the casualty rate, andthe official explanation cannot be relied upon. Prison conditions inTurkmenistan and other Central Asia republics are notoriously poor. A yearearlier up to 27 prisoners were killed after the authorities put an end to a prisonmutiny, in Ashgabat. In response to the mutiny on August 6 the deputy min-ister of the interior, Altibai Charyyev, was dismissed. His successor, the actingdeputy interior minister, Major-General Amangeldy Geldygurbanov, lasted justthree weeks in his new office. On August 28 Major-General Geldygurbanov washimself dismissed, demoted one rank, sacked as head of the Higher MilitiaSchool and removed from all interior ministry postings. Turkmen radioreported on August 28 that the president also sacked the head of the supremecourt, Amanmurat Kakabaev, claiming that the judiciary was suffering from an“epidemic of corruption”. Mr Kakabaev was replaced by the head of the Akhalregional court, Isa Rahmanov.

Turkmenistan 33


France improves its linkswith the regime

In contrast to other EU members France has come out in favour of closer tieswith Turkmenistan. At a time when even the European Commission has lostpatience with Turkmenistan, the president of France, Jacques Chirac, hostedMr Niyazov for a state visit on September 9-11. Three days before Mr Niyazov’sarrival in Paris, France announced that it would open an embassy in Ashgabat.The reasons for the French warmth towards Turkmenistan are simple. First,Turkmenistan has received millions of francs in French export credits and isalso thought to be in arrears to a number of French companies. Thomson hasinstalled a new air traffic control system at Ashgabat airport while Bouygueshas built a new presidential palace and mosque, reportedly at a cost of FFr700m($139.2m). Second, France, under Mr Chirac, is trying to shape its own foreignpolicy independent of that of the USA. As Washington is at present seekingcloser relations with Uzbekistan, so Paris has chosen Turkmenistan to be whatits minister of defence, Hervé de Charette, called on September 11 France’s“major partner” in Central Asia.

Economic policy

Little information oneconomic policy has been

released—

Information on economic policy has all but dried up. The Niyazov regime hasalways been secretive about economic policy and data but in recent monthsthe availability of information has significantly worsened. No figures on thefiscal accounts or monetary trends have been released.

—but rising gasproduction should have

kept the budget in balance

The surge in gas production should have kept the fiscal accounts in balance.The 1996 budget is based on the assumption that 41.5bn cu metres of gas willbe produced this year, of which 30bn cu metres will be exported at a price of$42 per 1,000 cu metres, yielding export revenue of $1.26bn (1st quarter 1996,page 32). In the first half of 1996 gas production was 20.18bn cu metres with14.1bn cu metres in exports—both slightly under the full-year target rate; theprice of the exports is unclear. Mr Niyazov’s forecasts of gas production of65bn cu metres, with 45bn cu metres in exports, thus look likely to be some-what off the mark.

The president backs awayfrom economic reform—

The main source of information on economic policy remains Mr Niyazov’sspeeches. At the end of 1995 Mr Niyazov claimed that 1996 would be “a year offundamental reform” (1st quarter 1996, page 31). These fundamental reformsnow appear to have been postponed. In his speech at Bayram Ali, Mr Niyazovdeclared that he had no plans to cut back on social spending, even though thisaccounts for 60% of all government expenditure, a rate that cannot be affordedunder current circumstances. Similarly, the president has set the target of re-ducing inflation to 10-15% per year over the next five years, although there isno indication as to how this will be achieved. Indeed, Mr Niyazov has notmentioned the IMF once during his recent speeches and shows every indic-ation of wanting to avoid having to implement an IMF-backed stabilisationplan. Turkmenistan has the dubious distinction of being the only former Sovietrepublic not to have agreed an IMF programme.

34 Turkmenistan


—but looks to sustainedrapid growth

The recent surge in growth has led Mr Niyazov to forecast that the economywould grow by 50-60% over the next five years, implying an annual growthrate over this period of 8.4-9.9%. Mr Niyazov also set a series of ambitiousproduction targets for oil and gas, although he failed to explain where thenecessary investment would come from. For example, raising gas production to110bn cu metres by 2001 cannot be realised without massive investment inexport pipelines, of which none is forthcoming at present.

Turkmenistan: Mr Niyazov’s economic targets (1996 plan)

% annual average1995 outturn 2001 target growth 1996-2002

Real GDP growth (%) –9.3 n/a 8.4-9.9

Gas (bn cu metres) 35.6 110 25.3

Oil (000 b/d) 80.0 200.5 20.1

Power generation (% change) n/a n/a 5.4

Chemical output (% change) n/a n/a 18.1Source: BBC, Summary of World Broadcasts.

Mr Niyazov’s new economic targets are similar to the last set announced in1994 (2nd quarter 1994, page 64). The president’s goal then was “to helpthe country catch up with the world’s developed industrialised nations by theturn of the century”. The 1994 plan set targets for the economy to achieve by1996 and 2002. The 1996 energy targets will be substantially missed. In 1994Mr Niyazov wanted gas production in 1996 to be 90bn cu metres, building upto 120bn cu metres by 2002. The EIU expects that gas production in 1996 willbe approximately 40bn cu metres. The president also aimed for oil productionto reach 180,000 barrels/day (b/d) by 1996, with 560,000 b/d to be produced by2002. Yet oil production is unlikely to be above 90,000 b/d this year.

The import substitutionpolicy is pursued

As part of his plan to achieve full import substitution by 2000 (3rd quarter1996, page 36), Mr Niyazov has decided to save money on importing foreignfood. According to the Turkmen language daily, Turkmenistan, on September10, the country will seek to produce 70-80% of its food requirement as opposedto the present total of 30%. To put this policy into effect, Mr Niyazov hasabolished the Ministry of Agriculture and replaced it with the Food IndustryAssociation. The first foodstuffs slated for import substitution are confection-ery, beer and mineral water. Confectionery imports are to be slashed, bringingdown the share of the local market from 83.7% at present to 26.6% by 1998.Beer production is to rise by 200% and that of mineral water by 600%. How-ever, the savings from cutting down on these imports are not significant. Totalannual imports of soft drinks amount to just $4m according to Turkmenistan.

Privatisation isproceeding at a very

slow pace

Information on the extent of economic restructuring in Turkmenistan is sparsebut a report from Interfax quoting EU consultants seems to indicate that reformis being undertaken at an extremely slow pace. The report, on September 19,claimed that the authorities had managed to privatise only 2,100 of the4,800 firms scheduled for privatisation in the first eight months of 1996. TheEU consultants quoted by Interfax claimed that 98% of small wholesaleand service-sector enterprises had been sold off, but only 2% of medium-sized

Turkmenistan 35


manufacturing firms had been privatised. If correct, the consultants’ statementcorroborates previous indications that privatisation in Turkmenistan has beenminimal. Further confirmation of this came from the president himself. In hisspeech at Bayram Ali, Mr Niyazov declared that more privatisation was on theway next year. He claimed that he would give a fillip to construction by sellingoff housing. However, given that the president has argued for “sociallyoriented” reform, state assets are likely to be largely given away and hence thesums raised for the state budget will not be considerable. Equally, the president’sclaim that he will sell off most large and medium-sized firms next year shouldbe viewed with scepticism. Such claims have been made repeatedly in the past.Mr Niyazov’s claim that he will privatise these firms by selling stock to foreignas well as local firms should also be viewed with caution given the generallynegative attitude of foreign investors towards Turkmenistan.

The economy

Gas production causes asurge in the economy—

The economic recovery in Turkmenistan has strengthened dramatically, withfirst-half industrial production rising by 32% on the first half of 1995, up from18.1% in the first quarter (3rd quarter 1996, page 37). The main reason hasbeen the pick-up in gas production, to 20.18bn cu metres in the first half of1996, up from 14.4bn cu metres in the year-earlier period. Freight volumes, oneof the few other economic figures available, rose by 23.8% year on year in thefirst half of 1996. The increase in production has had a salutary effect on theavailability of fuel and lubricants. Petrol production in the first eight monthsof 1996 was 503,100 tons, up 27.3% compared with the same period of 1995,while mazut (fuel oil) production rose 3.8% to 1.04m tons. As a result, fuelshortages have eased and on September 12 it was announced that rationingwould end. Other economic data is thin on the ground and there are noreliable inflation figures. According to a Turkmen Press Agency report onAugust 17, purportedly quoting the local IMF representative, monthly inflationin June was a mere 3%, but there are no year-on-year data for 1996 so far.

Turkmenistan: industrial and energy production, 1996

Jan-Mar Jan-Jun % change % changeTotal year on year Total year on year

Industrial production n/a 18.1 n/a 32.0

Gas production (bn cu metres) 11.37 12.7 20.18 39.9

Oil production (000 b/d) n/a –3.6 80.4 –0.8

Electricity production (m kwh) 3,675 17.0 n/a n/aSources: BBC, Summary of World Broadcasts; CIS Goskomstat.

—but the grain harvest isthe lowest since 1990

As expected, Turkmenistan has failed to achieve the ambitious targets set forgrain production. Like Uzbekistan, Turkmenistan has a policy of achievingself-sufficiency in grain by 1998 and is shifting land from cotton to grain. Butinstead of the 1.15m tons targeted by the president, Saparmurad Niyazov, witha yield of 1.92tons/ha (4th quarter 1995, page 51; 2nd quarter 1996, page 35),the country produced a mere 480,000 tons in 1996, at a yield of 0.8tons/ha.Indeed, the 1996 harvest is 43.5% down compared with that in 1995 and is the

36 Turkmenistan


smallest harvest since 1990, while the yield is the worst achieved for decades.Poor weather and mismanagement in the allocation of agricultural inputs arethought to have been the main reasons for the poor grain harvest.

The president has targeteda larger harvest next

year—

The president’s response was to issue a decree on August 6 setting a 1.2m-tongrain production target for 1997, but with little indication of how this will beachieved. The president has also set a longer-term target of 1.5m tons by 2000.A state commission has been established to oversee the mechanisation of theagricultural sector. Mr Niyazov has ordered that 145,000 tons of winter wheatseed be allocated for sowing and that the State Commodity and Raw MaterialsExchange procure the other necessary inputs, such as fertilisers and spare partsfor agricultural machinery.

—but there is a hint of areturn to cotton—

In setting the 1997 grain production target Mr Niyazov also projected a yield ofa record 3 tons/ha. To come to this figure the president cut the acreage givenover to grain by one-third, from 600,000 ha to 400,000 ha. So Mr Niyazov mayin effect be renouncing the failed policy of substituting grain for cotton.Numerous studies of agriculture in Turkmenistan have shown that it makessense to reallocate the area under grain to cotton which, given the agro-climatic factors, has a comparative advantage in Turkmenistan.

Turkmenistan: agricultural production and targets(’000 tons)

1995 1996 Target Actual Target Actual

Grain 1,000 850 1,150 480

Cotton 1,500 1,305 1,400 1,200a

a EIU forecast.

Sources: Reuters; CIS Goskomstat.

—which is also havingproblems

Reports indicate that the cotton harvest has been disappointing. By the end ofSeptember only 218,489 tons of cotton (15.6% of this year’s planned crop) hadbeen harvested, 70% less than the 718,810 tons brought in by the end ofSeptember 1995 (47.9% of last year’s planned crop). Worse still, reports indi-cate that the crop is of poor quality, reducing its potential export value. Thefinal cotton crop could be as low as 1.2m tons, well short of the government’starget of 1.4m tons, and 8% below the 1995 outturn of 1.31m tons. A crop of1.2m tons would represent a yield of 2.12 tons/ha—the worst this decade.

The poor harvest is in part a result of poor weather, which necessitated somereplanting. It is also a result of the government’s mismanagement of theeconomy which meant that there was a severe shortage of basic inputs, such asfertilisers, pesticides and spare parts for machinery. The shortage of machinerymeant that a large part of the crop had to be hand-picked. Another factordepressing production has been the low state purchase price, which acts as adisincentive to producers.

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1990 91 92 93 94 95 96

Cotton

Grain

Turkmenistan: agriculturalproductionm tons

Sources: Reuters; Goskomstat.

Turkmenistan 37


Oil and gas

Gas production leaps39.9% in the first six

months

Gas production in the first half of 1996 was 20.18bn cu metres, up 39.9% onthe first half of 1995. Output then appears to have turned down in July andAugust, with 4.33bn cu metres produced in these two months compared with5.08 cu metres in the corresponding period of 1995, a year-on-year declineof 14.8%. No figures have been released for gas exports, but on the basis ofofficial data the EIU estimates that gas exports in the first half of 1996 reached14.1bn cu metres. The unit price for exported gas was $42 per 1,000 cu metres,bringing in $592m in export earnings, although how much was paid in dollarsas opposed to barter is unknown. Turkmenistan’s gas exports continue to bechannelled through a joint venture between Turkmenistan and Russia’s state gasmonopoly, Gazprom. A US firm, Itera International Energy, is also involved,although little is known about this company.

Turkmenistan: oil and gas production

19961993 1994 1995 Jan-Mar Jan-Jun Jan-Aug

Gas (bn cu metres) 63.5 35.6 34.6 11.39 20.18 24.51 annual % change 5.7 –43.9 –2.8 12.7 39.9 25.6

Oil (m tons) n/a 3.4 3.5 1.17 2.00 2.86

Oil (’000 b/d) n/a 65.5 70.2 94.1 80.2 86.0 annual % change n/a n/a 7.2 3.6 –0.8 0.5Sources: BBC, Summary of World Broadcasts; Reuters.

Work on an exportpipeline to Iran is

started—

Work on a small gas export pipeline to Iran was officially started on October 9.A deal for the construction of the pipeline was agreed last September and thepipeline is slated for completion by next year, a date which could easily bemissed (4th quarter 1995, page 55). The 140-km pipeline’s annual capacity isset to start at 1.5bn cu metres per year (worth $63m at current Turkmen gasexport prices), rising to 8bn cu metres by the end of the decade. The pipelinebetween the southern Turkmenistan gasfield of Korpedzhe and Kurt Koy innorthern Iran is budgeted to cost $190m. Iran will initially meet 80% of theconstruction costs and will also pay for the development of the Korpedzhegasfield. Turkmenistan will repay Iran with supplies of gas.

—but a pipeline viaAfghanistan still looks a

remote prospect—

Mr Niyazov’s plan to build a gas and oil export pipeline via Afghanistan toPakistan has always looked overly ambitious given the civil war in Afghanistan(4th quarter 1995, page 56). The scheme, which has been ridiculed by somecynics in the oil and gas industry and which is part of the Bridas-Unocal lawsuit,now seems to be all but a complete write-off. Bridas, an Argentinian company,claims that it had an agreement as of April 1995 to undertake a feasibility studyfor a pipeline from Turkmenistan to Pakistan via Afghanistan. Meanwhile,Unocal of the USA and Delta Oil of Saudi Arabia launched a 12-month feasibilitystudy on October 20, 1995. In a late flurry of what proved to be misplacedoptimism, more partners were signed up for this heroic venture. In late AugustUnocal and Delta Oil signed a memorandum of understanding with Russia’sstate-owned gas monopoly, Gazprom, and the Russian-Turkmen gas joint ven-ture, Turkmenrosgaz, to participate in the Turkmenistan-Afghanistan-Pakistan

38 Turkmenistan


pipeline. The equity shares are 85% for Unocal-Delta (reportedly the split infavour of Unocal is 60:40), 10% for Gazprom and 5% for Turkmenrosgaz.

—with financing noweven more difficult

to secure

The seizure of Kabul by the Taliban on September 27 and the existence of tworival Afghan governments—the Taliban administration and the ousted Rabbanigovernment—has scared off potential sources of finance for the project.Unocal’s position on the pipeline seems to vacillate between its present realismand optimism about the future. On August 8 the chairman of Unocal, RogerBeach, said: “The uncertainties [over the project] have to do with Afghanpolitics.” However, just one week before the Taliban stormed Kabul, the Unocalexecutive vice-president in charge of the gas pipeline, Chris Taggart told Reuters:“The project has written support from the leaders of all the [Afghan] factions.”The Taliban’s seizure of Kabul has proved a devastating blow for the project. OnOctober 4 the Unocal executive vice-president in charge of the oil export pipe-line, Robert Todor, said: “International lenders have told us the project is notcurrently financeable.” Unocal seemed to have recovered some optimism byOctober 13 when the president and general manager of Unocal Pakistan,Richard Keller, told Reuters that he hoped that the problems in Afghanistanwere “a temporary situation”.

New oil and gas contractterms leave investors cold

Turkmenistan has adopted new standard contracts for oil and gas investors,reportedly drawn up by the Italian national electricity monopoly, Enel. How-ever, the legal and regulatory framework in Turkmenistan is under-developedand there are no established mechanisms by which investors can realisticallyappeal against the capricious behaviour of the government.

The new contracts suffer from five major flaws. First, they are inflexible. For-eign investors must now present a timetable to implement their work and abudget for the first year less than ten weeks after signing a production-sharingagreement (PSA). The yearly budget cannot be amended, and there is no flexi-bility on work schedules. PSAs are for 25 years, with extensions set at ten years.Exploration work must take five to eight years, and development work sevenyears. Before 1996 these periods were set on a case-by-case basis by each foreigninvestor and the government. Second, there is no concept of “grandfathering”existing contracts. The new contract terms are reportedly being imposed oncompanies which have been investing in Turkmenistan from before the newprovisions came into force. Third, the government’s share of profits will rise. Itwill now be between 35% and 90%, up from 35-70% in the past. Fourth, thepenalties on companies which fail to meet their obligations are severe, such asgiving the government the right to cancel the contract. Fifth, foreign investorsare subject to onerous local obligations. They must: prefer local firms for mat-erials and services; pay for local “social projects”; help train Turkmen workers;and import the latest technology.

The new contracts give foreign investors very little in return. Foreign investorsare allowed to have a monopoly in a concession block and build pipelines,although this requires a new contract to be negotiated with the government.The one benefit for foreign investors is that profits are fairly lightly taxed. Thetop rate of corporation tax for foreign investors is set at 25%, while the maxi-mum local rate is 40%.

Turkmenistan 39



The trade balance stays insurplus

According to a Reuters report on September 30, foreign trade remains in sur-plus. The report claimed a first-half trade surplus of $407m, little changed onthe $411.9m trade surplus in the first half of 1995. Both exports and importsseem to have sagged on their 1995 levels. Exports over the first half of 1996amounted to $950.3m, 6.2% less than the year-earlier figure of $1.01bn, andimports were down by 9.6% to $543.3m, from $601.3m in 1995. According tothe authorities, 62.4% of all export earnings were from gas sales.

However, the data do not give the full picture. There is no way of knowing howmanat transactions were converted into dollars, or how barter was valued bythe Goskomstat. Turkmenistan still has to accept barter for much of its gas. Forexample, Russia has announced its wish to buy 5bn cu metres of gas in 1997,worth $210m at the current export price, but it is only willing to pay 20% inhard currency and wants to pay the balance in industrial goods.

Turkmenistan: foreign trade($ m)

1995 1996 Jan-Jun Jan-Mar Apr-Jun Jan-Jul

Exports 1,013.2 517.2 433.1 1,050.2

Imports –601.3 –292.0 –251.3 –637.0

Balance 411.9 225.2 181.8 413.2Sources: Reuters, Turkmenistan Goskomstat.

The debt stock remainslow

Data from the Ministry of Foreign Economic Relations indicate thatTurkmenistan’s total debt stock is now $882.4m, equivalent to 14.7% ofthe EIU estimate of 1996 GDP. Using the more meaningful indicator ofdebt/non-former Soviet Union exports (which are more likely to yield hard-currency revenue), Turkmenistan’s external debt is 156.4% of non-formerSoviet exports.

Turkmenistan: external debt by creditor($ m)

USA 200.0 of which: US Eximbank 80.0

Germany 168.0 of which: Deutsche Bank 78.0

Turkey 119.0

UK 86.6

Iran 78.0 of which: Export Bank of Iran 28.0

EU 58.6

Total incl others 882.4Source: Ministry of Foreign Economic Relations.

On paper, Turkmenistan is a net creditor because of the massive gas paymentsarrears owed by other former Soviet republics, such as Ukraine. Indeed, in 1994

40 Turkmenistan


Turkmenistan was pressured to give Ukraine debt relief. The tables have nowturned. Mr Niyazov’s policy of borrowing to invest in infrastructure and ind-ustry (highways, presidential palaces, steel factories) has put Turkmenistan in aposition of being in arrears on its obligations.

Business news

• Turkmenistan Airlines, now called NUGAT, has received two Boeing 757s.

• John Brown (UK) has a contract to build a 400,000 tons/year (t/y) urea plantnear Mary with operations set to begin within two years. The UK company willalso upgrade the existing 600,000 t/y ammonia plant. The contract is worth$57m.

• Dragon Oil has increased output by 20%, upping its production inTurkmenistan to 1,800 barrels/day (b/d). Dragon has bought 60% of LamargEnergy Associates which is operating in the offshore Cheleken bloc.Turkmenistan owes Dragon Oil $14m which will be paid before the endof 1996.

• Monument Oil and Gas (UK) has signed a production-sharing agreement(PSA) with the Turkmen government. Monument Oil and Gas has a 25-year2,500-sq km onshore block. The block includes three operational fields, theBurun, the Kyzylkum and the Karatepe, and is in western Turkmenistan southof the town of Nebit-Dag. Initial investment will be $50m, possibly rising to$300m. Monument Oil and Gas will initially have rights to 60% of the prod-uction according to the PSA, falling to 10% as production increases.

• Merhav Management has arranged $165m of the financing for theTurkmenbashi (Krasnovodsk) oil refinery upgrade. The financing has beenarranged for the Mannesman contract (to build an 80,000 t/y capacity lubricat-ing oil and paraffin unit) with export credit coverage through Hermes.

Turkmenistan 41


Uzbekistan

Political structure

Official name Republic of Uzbekistan

Legal system The former Soviet republic of Uzbekistan declared its sovereignty in 1990. On August31, 1991, after the failure of the Moscow coup, 98.2% of voters supportedindependence in a referendum. A new constitution was adopted on December 8, 1992,declaring Uzbekistan a multiparty democracy and a presidential republic

National legislature The unicameral legislature, 150-member Ali Majlis (parliament), is controlled by thePopular Democratic Party. The few deputies from opposition parties have been forcedout


National elections December 1994-January 1995; next elections due by 2000 (1996 presidential electionswere cancelled by a referendum held on March 27, 1995) and December 1999(legislative)

Head of state Islam Karimov, elected president with 86% of the vote on December 29, 1991

National government Council of Ministers, headed by the prime minister, Utkur Sultanov, nominated by thepresident. In practice, Mr Karimov exercises total control and appoints hakim (regionalgovernors) who have sweeping powers

Main political parties Popular Democratic Party (PDP; former Communist Party); Adolat, Social DemocraticParty of Uzbekistana; Istiklol Yolia; Birlik (Unity)b; Erk (Will)b; Islamic RenaissancePartyb

Council of Ministers Prime minister Utkur SultanovFirst deputy prime minister Ismail DzhurabekovDeputy prime ministers Viktor Chzhen, Saidmukhtar Saidkasymov,

Rustam Yunusov, Mirabor Usmanov, Kayim Hakkulov, Dilbar Gulomova, Rim Giniyatulin

Deputy prime minister & minister of finance Bakhtiar Khamidov

Key ministers Agriculture Marks JumaniyozovCommunications Abduvokhid DzhurabaevDefence Rustam AkhmedovEducation Dzhurah YuldashevForeign affairs Abdulaziz KomilovHealth Shavkat KarimovInterior Zakirzhon AlmatovJustice Sirojiddin MirsafoevLabour Okilzhon ObidovPower Valery Otayev

Central bank chairman Faizullah Mullazhanov

a Government-sponsored opposition party. b Banned.

42 Uzbekistan


Economic structure



GDP at current prices Som m 61 444 5,095 64,878 298,530

GDP at exchange ratea $ bn 35.9 2.0 5.2 2.6 10.0

GDP at purchasing power parity $ bn 51.8 46.1 45.0 42.9 42.5

Real GDP growthb % –0.5 –10.6 –2.3 –4.2 –1.2

Consumer price inflation % 105 4,671 4,169 1,568 305


Exportsc $ m 19,535d 869 730 1,006 1,792

Importsc $ m 21,475d 929 953 1,194 1,601

Exchange rate Rb:$ (av) 22.0 220.0 930.0 25.0e 30.0e

October 18, 1996 Som40.05:$1e

% of % ofOrigins of net material product 1995f total Components of gross domestic product 1995g total


Industry & construction 24.2 Public consumption 22.0


Trade 5.6 Net exports n/a

Others 33.2 Change in stocks n/a

NMP 100.0 GDP incl others 100.0

Principal exports 1995h % of total Principal imports 1995h % of total

Cotton 50.0 Machinery & equipment 29.1

Energy 14.6 Foodstuffs 17.7

Foodstuffs 3.5 Transport equipment 7.6

Transport equipment 3.4 Ferrous metallurgy 5.0

Main destinations of exports 1995h % of total Main origins of imports 1995h % of total

Russia 18.8 Russia 24.9

Switzerland 13.7 South Korea 14.8

Kazakstan 7.7 Germany 13.0

UK 7.6 Kazakstan 7.5

Tajikistan 5.0 Hungary 5.0

Turkmenistan 4.8 Switzerland 4.1

a EIU estimates. b Figures from Gosprognostat. c Trade outside the former Soviet Union. d Total trade, valued at domestic prices which representinternal prices originally set under the centrally planned economic system, and are significantly below world market prices. e Som, official rate.f Gosprognostat. g World Bank estimates. h Percentage of total trade.

Uzbekistan 43


Outlook for 1997-98

The Afghan crisis couldblow over—

The seizure of Kabul by the Taliban militia has suddenly focused attention onAfghanistan and the potential threat to the stability of Central Asia from thesouth. The president of Uzbekistan, Islam Karimov, will exploit the threat posedby the Taliban in order to improve Uzbekistan’s case for being treated as thedominant regional power and a force for stability in Central Asia. Meanwhile,the regime will blame any popular unrest in Uzbekistan on either the Taliban orIran, despite the fact that Iran sees the Taliban as a threat. The irony is that thecrisis in Afghanistan is extremely useful for Mr Karimov, as long as it does notspread; it is the claim that it will spread which bolsters his diplomatic position.Fortunately for Mr Karimov, the Taliban shows no sign of wanting to invadeCentral Asia, indeed they are finding it difficult to hold on to their recent gains.As a result, the crisis will probably subside, although the propaganda value ofthe Taliban for Uzbekistan will continue to be considerable.

—but involvement bringsrisks

Mr Karimov’s continued support for General Abdul Rashid Dostam, the Uzbekwarlord currently resisting the Taliban’s threatened advance into northernAfghanistan, has always carried with it a level of risk. In the unlikely eventthat General Dostam were to be defeated, there would be a steady flow of eth-nic Uzbek refugees fleeing Afghanistan into Uzbekistan. An even more worry-ing, although unlikely, prospect would be an Afghan war of revenge againstUzbekistan. For the last four years, Afghan mujahideen have allowed the Tajikopposition to use north-eastern Afghanistan as a base from which to launchattacks back into Tajikistan, and in 1993 there were minor attacks on Uzbektargets along the border. Although there is no armed Uzbek opposition move-ment similar to that in Tajikistan, an Islamist Afghanistan would be likely to behostile to Uzbekistan.

Developments inTajikistan are more

threatening—

More worrying for Uzbekistan has been the shift of the Tajik civil war from theTajik-Afghan border into Tajikistan itself. There is a very real danger—onewhich has increased substantially in the last quarter—that the war will spreadto Uzbekistan, which has been supporting the Tajik government with arms, orthat there will be a new inflow of refugees. Twice in the past six months theKyrgyz Republic has had to take preventative measures because of an upsurgein fighting in border areas of Tajikistan. Uzbekistan has also taken, but has notpublicised, similar measures.

The extent of the threat posed by the conflict in Tajikistan is likely to encour-age Uzbekistan to attempt to broker a political settlement. Mr Karimov will,however, be eager to ensure that such a settlement in Tajikistan is favourable tohis allies in the Tajik government and, by implication, to Uzbekistan. A settle-ment, if at least partly seen to have been brokered by Tashkent, would be thefirst step to confirming Uzbekistan’s dominant role in the region and wouldfree up Mr Karimov to concentrate on other regional problems, such as bring-ing the Kyrgyz Republic to heel.

44 Uzbekistan


—but they give an excusefor no liberalisation

Whether the Tajik civil war ends or not, the very fact that it is has happened willcontinue to provide an excuse for the lack of political freedom in Uzbekistan.Whatever the authorities may have said in a recent Organisation for Securityand Cooperation in Europe (OSCE) human rights seminar and a later one on themedia, their proposals for a law on political parties and later statements haveshown an unwillingness to allow the opposition more freedom to operate.Indeed, the government’s message is very clear for those willing to hear it. Theofficial stress on the need for a “constructive opposition” and the foreign min-ister’s comment that there would probably be no “constructive opposition” fora generation mean that the country’s dissidents, while being allowed to returnfrom exile, will not be permitted to participate fully in domestic politics.

Economic policy isunlikely to change for the

better—

According to official sources Uzbekistan will remain on a successful path ofgradual reform with the som becoming convertible on the current account in1997. One of the key problems with economic policy in Uzbekistan will be thefact that officials who spot policy errors cannot raise their concerns for fear ofcontradicting Mr Karimov and being castigated for disloyalty. And decadesof failed import substitution in other developing countries will not deterUzbekistan from attempting to bring down its trade deficit by concentrating oncutting imports.

—GDP in 1996 is likely toremain stagnant—

The government is now less upbeat over growth prospects in 1996 and ispredicting stagnant GDP, having initially hoped for growth. Moreover, giventhe manner in which the authorities are managing the external account andthe momentum building up for a maxi-devaluation, another contraction in theeconomy is possible. The EIU has revised its forecast for real GDP growth in1996 to zero, while only modest growth of 1-2% is expected in 1997-98.

—and inflation targetswill not be met

The IMF-agreed target of a 21-25% inflation rate at end-1996 will be missed. Atthe very least, and assuming inflation of just 2% per month in the second half,end-year inflation will be 45%, producing an annual average rate of 55%. In theevent that the true level of inflation, as indicated by the fall in the bazaar ratefor the som, runs at 5% per month in the second half of 1996, year-endinflation will be 74%, an annual average rate of 64%. With fiscal and monetarypolicy remaining lax and devaluation (see below) raising import costs, inflationwill be slow to subside in 1997 and 1998.

The current account willmove into substantial

deficit—

The large grain shortfall means that the country’s trade deficit, which is alreadyover 7% of GDP in the first half of the year, will worsen. We now expect thetrade deficit to reach $750m or 8% of GDP this year. Of this, the bulk ($500m)will be with convertible-currency partners.

The prognosis on both exports and imports is poor. Simply to plug the gap indomestic grain demand at forecast international prices over the next sixmonths will cost $404m. On the export side, cotton fibre exports to marketsoutside the former Soviet republics in the 1996-97 season are officially forecastat 980,000 tons. At an estimated price of $0.83/lb, a premium to the worldcotton price because of the quality of Uzbek cotton, this would bring in $1.8bnin export earnings, which is 16% less than in 1995-96 because of the fall inprices. Had the government not shifted a large acreage over from cotton to

Uzbekistan 45


grain, as part of its strategy to achieve self-sufficiency in grain, export earningscould have been boosted by $191m due to the additional cotton output.

There are no data on invisibles, but these are also expected to be in deficit,which could bring the current-account deficit to some 10% of GDP. In practicethe government may opt to fall into arrears on some of its interest paymentsand take drastic anti-import measures to keep the current-account deficit undercontrol. Either way we believe that the current-account deficit is unlikely todrop below 7% of GDP.

—and a large devaluationis likely

In this situation the authorities face a dilemma over exchange rate policy. Onthe one hand they feel they have to maintain the artificially high officialexchange rate of the som, which currently stands at Som40:$1, to subsidisegrain imports. On the other hand, the official rate is so strong as to suck inconsumer goods’ imports, and the rapid fall in the bazaar rate for the currencyindicates substantial hidden inflation, which makes the official rate even moreovervalued. On balance the official exchange rate is clearly detrimental to theexternal accounts and it will have to be abolished. Initially this is likely to bringa substantial drop in the som’s value to eliminate the differential with thebazaar rate.

There is little incentivefor foreign investment

Uzbekistan has had very little foreign direct investment (FDI) to date and thissituation is unlikely to change. Two features deter direct investors. First, thegovernment is unwilling to cede control to foreign partners. Second, the anti-import measures adopted this year have restricted direct investors’ access tohard currency. Foreign firms are subject to a licensing system for foreign ex-change which allows the government to invent endless bureaucratic obstaclesto deny them access to foreign exchange. Not only do these measures preventvital capital goods’ imports in the short term, they damage the profitability ofinvestments and cut back on FDI-generated exports in the medium term. Witha grossly inadequate legal and regulatory framework, disgruntled direct inves-tors may well have little choice but to scale back their commitments, or evenpull out.

Uzbekistan: forecast summary(% change year on year unless otherwise indicated)

1995a 1996b 1997b 1998b

Real GDP –1.2 0.0 1.0 2.0


Consumer prices (annual average) 305 64 35 25

Trade balancec ($ m) 191 –500 –300 –200

Average exchange rate (Som:$) 30.0 43.0 60.0 75.0

a Actual. b EIU forecasts. c Non-CIS trade only.

-15

-10

-5

0

5

1991 92 93 94 95(a) 96 97 98

Uzbekistan: gross domestic product

% change, year on year



46 Uzbekistan


Review

The political scene

Uzbekistan’s Afghanstrategy has been in the

spotlight—

Uzbekistan’s longstanding involvement in the Afghan civil war has come un-comfortably to the fore after the capture of Kabul on September 27 by theTaliban militia. The Taliban are an Islamist group with a strong traditionalistbent, who seem to have backing from the Pakistani government and someprivate Saudi sources. The president, Islam Karimov, took a hardline stance,arguing that the militia must be stopped from advancing north of the strategicSalang Pass—the route through northern Afghanistan to the Uzbek border.Mr Karimov’s reasoning was that if the Taliban went north of the Salang Passthere is no knowing where they would stop. The other Central Asian republicshave rejected Mr Karimov’s line, although he did receive support from theformer head of the Russian Security Council, General Aleksandr Lebed. Atthe emergency Commonwealth of Independent States (CIS) summit held inAlmaty on October 4, convened to discuss the evolving conflict in Afghanistan,Mr Karimov called for CIS support, of an unspecified nature, for General AbdulRashid Dostam, an ethnic Uzbek warlord in control of much of northernAfghanistan. He was openly opposed by the Kazak and Kyrgyz presidents. Tounderline his concern at a possible Taliban advance north, to the border,Mr Karimov visited the town of Termez on the Uzbek-Afghan border. Termezwas the main resupply point for the Soviet forces in Afghanistan in the 1980sand has more recently been used to supply General Dostam, Uzbekistan’slong-time client. On October 11 Russia’s NTV channel claimed that Uzbekistanhad moved some of its better quality troops to Termez and had asked reserviststo register themselves for a possible call-up.

—with its client nowholding the balance

of power

Mr Karimov has appeared uncomfortable at the way in which Uzbekistan’s rolein Afghanistan has received so much attention recently. He has, for example,asked that General Dostam not be referred to as an Uzbek general. But thecourse of events in Afghanistan has put General Dostam, and by extensionMr Karimov, in the position of arbiter between the Taliban and the oustedRabbani government. General Dostam’s stronghold is the northern and mainlyUzbek town of Mazari-Sharif. While he controls only six of Afghanistan’s33 provinces—the Taliban control around 24—he has the advantage of favour-able terrain, heavy weapons and a flow of arms from Uzbekistan. Moreover, thepro-government forces, commanded by Ahmed Shah Massoud, seem to havesucceeded in allying themselves with General Dostam, who was until recentlya hated enemy. The Taliban are meanwhile reported to be working hard toensure General Dostam’s neutrality so that they can get on with the job ofdefeating the Rabbani forces lodged in north-eastern Afghanistan.

Tashkent gainsdiplomatic mileage from

the new situation—

Mr Karimov has been quick to use the Afghan crisis to bolster his diplomaticposition. On October 1 he commented that he was worried by “the seriousincrease in terrorism and violations of human rights in Afghanistan”. On thesame tack, on October 3 the foreign minister, Abdulaziz Komilov, claimed thatAfghanistan was now “a hot-bed of terrorism”, as well as being a source of

Uzbekistan 47


drugs and illegal arms. The argument, advanced by some US diplomats in theregion, that Uzbekistan is a reliable anti-fundamentalist bulwark, has gainedcredibility as a result of the Taliban victory in Afghanistan. Better still for those,particularly in the US administration, arguing for the Karimov regime to begiven more leeway on trade and human rights issues has been the unanimousadoption by the UN Security Council, on October 22, of an Uzbek-proposedarms embargo on Afghanistan. The UN vote is an important diplomatic coupfor Uzbekistan, although in practice it is meaningless. Afghanistan is awashwith arms, there are endless numbers of small-scale facilities producing smallarms just inside Pakistan supplying the combatants, and Uzbekistan itself willprobably continue to supply weapons to General Dostam.

—and draws nearer toMoscow

Along with his anti-Islamic-fundamentalist line, Mr Karimov has recentlysought to underline his country’s autonomy from Russia. He has lambastedKazakstan, the Kyrgyz Republic and Turkmenistan for having close defencelinks with Russia, and for alleged subservience to Moscow. However, events inthe last quarter have demonstrated a strong community of interest betweenRussia and Uzbekistan. The Tajik opposition seems to have redeployed most oftheir forces from Afghanistan into Tajikistan and in September there was heavyfighting near the Tajik-Kyrgyz border between the Tajik government and oppo-sition forces. As a result, and somewhat surprisingly given Mr Karimov’s recentcriticism of Kazakstan and the Kyrgyz Republic, Russia and Uzbekistan havebeen seen working closely together. On August 8 the Russian foreign minister,Yevgeny Primakov, announced that Mr Karimov and the Russian president, BorisYeltsin, had agreed to work together to achieve a peace settlement in Tajikistan.In a further example of improving Russo-Uzbek relations, on August 23 Russia,along with Tajikistan, was given observer status in the Central Asian EconomicUnion (CAEU). The CAEU is seen as providing another forum for Russian-Uzbek interaction and a means of supporting the Tajik government.

A human rights seminarwas not the success that

was planned—

The Office for Democratic Institutions and Human Rights (ODIHR), part of theOrganisation for Security and Cooperation in Europe (OSCE), organised a hu-man rights seminar in Tashkent on September 11-13, to the delight of the Uzbekauthorities. Mr Karimov was keen on the idea for its obvious domestic prop-aganda value. While the Uzbek government has in the past been criticised for itshuman rights record, the OSCE has long been seen as being reasonably suppor-tive of the Karimov regime. However, all did not go according to plan. First, theKyrgyz Human Rights Bureau boycotted the seminar, arguing that human rightswere not respected in Uzbekistan. Second, less than a fortnight before thehuman rights seminar, the monitor for Human Rights Watch, John Macleod,was arrested and held overnight on August 30-31 by the Uzbek police. Thegovernment frequently cites the fact that Human Rights Watch, an inter-national human rights organisation based in New York, has opened an office inTashkent as proof that all is well on the human rights front. The authoritiesattempted to blame Mr Macleod for his own arrest, implying that he was drunk,but the arrest is thought to have been linked to Mr Macleod’s public statementsabout political developments in Uzbekistan. Asked by Reuters about allegedpolitical liberalisation in Uzbekistan on August 28, John Macleod stated: “A lotof it is simply public relations.” Mr Macleod’s statement pre-empted a promise

48 Uzbekistan


by Mr Karimov on August 29 to ensure that Uzbekistan meets internationalhuman rights standards.

—because not all thedissidents would

play ball—

The Uzbekistan authorities allowed the leading dissident, Abdumannob Pulat,to return for the seminar and allowed the local human rights society to hold apublic meeting. Given past treatment of Mr Pulat, whose brother Abdurahimwas the founder of the Birlik (Unity) opposition movement, the granting of avisa was perceived as a significant concession. Mr Pulat was kidnapped by theNational Security Service (the local successor to the KGB) from a human rightsseminar in Bishkek in December 1992, and then went into exile after spendinga period in prison.

Although Mr Pulat’s return was not announced, he was interviewed on Uzbekstate radio on September 11. To the authorities’ dismay, his comments weredistinctly barbed. Mr Pulat claimed to be optimistic about prospects for pressfreedom and free speech, but stated baldly that there were no such freedoms atpresent. Mr Pulat pointedly said that it would be the next generation and nothis that would enjoy political freedom. He also called for the release of 27 polit-ical prisoners; Uzbekistan denies holding any. In contrast, a former politicalprisoner, Inomzhon Tursunov, struck a more nationalistic note and agreed withthe government’s view that the opposition had to be more constructive.

—and the governmentchanged its tone shortly

after the seminar—

During the human rights seminar government officials were moderate in theirstatements. In a radio interview the minister of justice, Sirojiddin Mirsofaev,admitted that there were some problems relating to human rights, but thesewere “in the court system and in other administrative bodies” and that thegovernment was committed to tackling them gradually.

Once the human rights seminar had ended, Mr Komilov made clear the govern-ment’s attitude. In an article in the government-controlled Russian languagedaily, Narodnoye Slovo, on September 25, Mr Komilov accused the opposition ofnot putting patriotism first and of being corrupt. He claimed that the humanrights seminar had shown that Uzbekistan was being lied about by publicationsinfluenced by the opposition and written by people “with excessive, uncalled-for ambitions”. Mr Komilov made it clear that the opposition was beyond thepale, accusing it of “foaming at the mouth” and “double-dealing, demagogy(sic), political and economic intrigue”. According to Mr Komilov it is the nextgeneration which will provide a constructive opposition.

—with little on offer forthe opposition

For all the official rhetoric about needing to allow an alternative, the govern-ment’s attitude to dissent has not fundamentally changed. The draft law onpolitical parties published on September 19 after the OSCE seminar is highlyrestrictive. No party can be formed on ethnic or religious grounds, —the un-written exception being any party that promotes Uzbek nationalism—which isa blow to the Islamist opposition. Also banned are any parties that seek the“subversion of the constitutional order”, which could be made to apply to anyopposition party. A party must provide evidence of 3,000 members in at leasteight of the country’s 14 administrative regions. This provision will handicapthe opposition, which has always been based mainly in Tashkent. Should aparty manage to register, the justice ministry can ask to attend all its meetings.

Uzbekistan 49


A party also cannot have a name similar to another party. This provision islikely to rule out at least three opposition movements, as two government-sponsored “opposition” parties were created with similar names in 1995. Thepro-government Adolat Social Democratic Party was founded in February 1995and has a newspaper Adolat (Justice). But Adolat is also the name of a suppressedsecular opposition movement led by Uzbekistan’s former vice-president whichwas founded in 1994 and of a suppressed opposition Islamic party founded in1989. More seriously, the first opposition party to be established in Uzbekistan,Birlik, founded by Abdurahim Pulat, will find that its name clashes with that ofthe Khalq Birligi (People’s Unity Movement), a pro-government party foundedin May 1995 which publishes a newspaper called Birlik (Unity).

The population is gettinga diet of nationalism

Mr Karimov’s transformation from Communist to nationalist has continuedapace. The president is particularly keen on the Manaviyat va marifat (Spiritualityand Enlightenment) organisation, which spreads propaganda designed to en-courage Uzbek nationalism, or, as Mr Karimov claims, provides “high spiritualvalues in society, national ideology and education of young people in a spiritof respect for our rich cultural heritage and historical traditions and in a spiritof love for the motherland and devotion to the ideals of independence”. In-deed, the transition from Communism to nationalism is proving fairly smooth.The government has simply turned the Soviet “Voluntary Society for Cooperationwith the Army, Air Force and Navy”, known by its Russian initials as theDOSAAF, into the “Vatanparvar” (Fatherland) organisation. The new Uzbeknationalist organisation, like the old Communist one, will provide teenagerswith paramilitary training. There is also the growing cult of Timur (also knownas Tamerlane) a medieval warlord who conquered and devastated large parts ofthe Middle East and Asia. On August 6 the government held a conference onTimur in Tashkent at which a deputy prime minister, Dilbar Ghulomova,argued that he had favoured women’s liberation. She claimed that Mr Karimov,also a feminist, was thereby following in Timur’s footsteps.

Economic policy

The budget position looksgood at first glance—

The government has released no new data on the budget. The most recentfigures refer only to the first half of 1996. These indicate a budget either inbalance or with a deficit of 2.1% of GDP (3rd quarter 1996, page 51). Eitherway, Uzbekistan is officially within the 4% of GDP deficit targeted in theprogramme agreed with the IMF.

—but only throughmanipulation

However, it is likely that the government is meeting the IMF criteria only onpaper. In a similar fashion to the governments of Kazakstan and the KyrgyzRepublic, the Uzbek administration is bringing forward revenues and delayingexpenditures. On the revenue side, the authorities are forcing firms to pay taxesin advance. Mr Karimov issued a decree on August 12 taxing all exports 60 daysafter shipment—whether or not the foreign customer has paid for the Uzbekexports. The government has the right to seize firms’ assets for late payment oftaxes. On the expenditure side, the government is not paying wages andbenefits. To avoid incurring interest on debt to finance the deficit, the govern-ment has given itself an interest-free loan from the banking sector. To avoid

50 Uzbekistan


borrowing abroad the government is still subsidising its foreign operations witha grossly overvalued official exchange rate.

There are some novelinstruments of monetary

policy

The government’s approach to monetary policy is at the very least unusual.While most governments target monetary aggregates, Uzbekistan targetsadministrators. The Uzbek Commission on Monetary and Credit Policy meetsmonthly and fines those officials whose districts have overshot their monetarygrowth targets. According to the government-run Russian daily, Pravda Vostoka(Truth of the East), on August 13 all of the heads of Uzbekistan’s 12 provincesand the Karakalpak autonomous republic were fined 10-20% of their monthlysalary for not meeting the July monetary targets. As Tashkent city actuallymanaged to beat the targets, city leaders were given a 30% bonus.

In a desperate attempt to meet its money supply target for August, and to paythe wages of farmers working on the harvest, the government resorted to asimple tactic—it ordered banks on August 20 to end all cash payments until theend of the month. Neither individuals nor companies were able to withdrawmoney until September, according to a Reuters report on August 20. Somaccounts were frozen, creating in effect a huge interest-free loan which thegovernment funnelled to the agricultural sector.

There are signs of ahard-currency shortage

Uzbekistan’s dual exchange rate system has exacerbated one of the country’smain problems, namely the shortage of hard currency. By the beginning ofOctober even the official rate had fallen to Som40.5:$1 from Som38:$1 at theend of July—a 6.2% nominal depreciation in two months. The bazaar rate hasfallen from Som51:$1 to Som70:$1, a nominal depreciation of 28%. The spreadbetween the official rate and the bazaar rate has thus more than doubled, from34.2% to 72.8%. But the government response has been simply to deny thatthe currency is under pressure and to claim in the face of all the evidence thatthe som will be current-account convertible in 1996. The minister of finance,Bakhtiar Khamidov, flatly denies that a dual exchange rate even exists. Mean-while, the main Uzbek-language daily, Ozbekistan Ovozi, claimed on October 12that there would not be a devaluation of the official rate. However, the officialexchange rate of the som is clearly overvalued. In October 1995 the currencywas trading at Som34.4:$1; a year later the local currency’s official rate has onlysuffered a 15.1% nominal depreciation, yet prices had risen by 40.4% betweenOctober 1995 and June 1996 (the most recent data available), implying a realappreciation. By contrast the bazaar rate over the past year has fallen fromSom47:$1 to Som70:$1, a 32.8% nominal fall, which is much closer to theinflation rate.

The government’s claims are being contradicted by foreign investors. TheFinancial Times on September 6 quoted BAT (British and American Tobacco) assaying that it could take up to 60 days to get hard currency. Worse still, by thebeginning of September, BAT had only been able to buy $1.5m since January,around one-fifth of its requirement of $7m. BAT is the most important investorin Uzbekistan after the Korean conglomerate Daewoo in terms of investmentto date.

Uzbekistan 51


The underlying problem isthe grain harvest—

The government’s goal of self-sufficiency in grain production is the main causeof the deterioration in the external balance. With its exports dominated by asingle commodity, cotton, Uzbekistan was bound to be damaged by this year’sslump in world prices. However, the government has made what was clearlygoing to be a difficult year potentially disastrous by trying to achieve self-sufficiency in grain this year. It transferred 360,000 ha of land from cotton tograin production. Had this acreage been used for cotton, and assuming a cottonyield of only 2 tons/ha, the government would have harvested 720,000 extratons of cotton, representing additional earnings of $191m.

Domestic demand for grain in Uzbekistan is some 4.5m-5m tons. Although thegrain harvest in 1995 was only 2.38m tons, the government had aimed for aharvest of 4.5m tons this year. Instead, the final harvest was 2.74m tons, whichwill necessitate some $400m in imports to make up the difference.

—which has forced ahighly disadvantageousbarter deal with Russia

The authorities have had to turn to Russia to plug the hole in local graindemand—and in addition will have to pay a huge premium. Russia agreed onOctober 9 to provide 400,000 tons of grain in return for 77,000 tons of cottonfibre. The depth of the economic crisis is clear from the uneven nature ofthe deal.

The grain Russia is selling to Uzbekistan is worth some $92m, at the EIU’sforecast world price in the fourth quarter of 1996; given the quality of theRussian grain, it is probably worth much less. By contrast Uzbek cotton is thebest quality cotton in Central Asia and its supplies would be valued on theworld market at $141m.

Import substitutioncontinues apace—

Despite the grain fiasco, the government has pressed on with its policy ofimport substitution. The government’s latest economic databook lists 120 newproducts which are being produced in Uzbekistan, including electronic goods,power transformers, electrical pumps and welding apparatus. Although theelectronic goods are being assembled by Daewoo and so will be exportable, it isunclear as to how much value added there is in the other items being producedas part of the import substitution programme. In all likelihood Uzbekistan iswasting scarce resources on manufacturing low-quality products in a vain at-tempt to reduce its import bill. Uzbekistan has been repeatedly told by foreignadvisers that import substitution is discredited and counterproductive.

—as does state-ledindustrial policy

The government is funnelling investment towards a list of priority sectors, incomplete contradiction to its claimed commitment to market reform. Accordingto government data, Som32.3bn ($820m) of the Som55.5bn in capital invest-ment in the first half of 1996 went to priority sectors. Although the ratio of fixedinvestment to GDP, officially reported at 30.7%, looks impressive, the fact thatmore than half of this was allocated by administrative fiat is a cause for concern.The largest priority sector is energy, which received Som11.4bn in investment,or 20.6% of all capital investment and more than one-third of all priority invest-ment; the underlying aim here is self-sufficiency in oil. Another priority sector,transport and communications, has received Som7.7bn in capital investment.Some of this investment is not going into facilitating export routes but is insteadbeing spent on improving transport routes within Uzbekistan and rationalising

52 Uzbekistan


the Soviet-era road and rail network which forced travellers to cross the territoryof another republic to reach their destination in another part of Uzbekistan.

Privatisation is still verylimited

The government has claimed spectacular successes for its privatisation pro-gramme; in the first half of 1996 some 933 firms ceased to be in the state sector.However, of these, 561 enterprises became joint-stock firms, meaning that theyremained in effect under state control. Only 231 actually became “private”although the size of the state’s remaining equity stake is unknown. The re-maining 141 enterprises became undefined “non-state” entities.

Despite the extremely poor environment for private firms, government datashow that the state sector is shrinking dramatically. The authorities claim thatin the first half of 1996 the number of state-sector firms as a percentage of allfirms fell from 21.7% to 17.4%. In the same period a reported 19,100 newprivate-sector firms were supposedly founded. However, the official definitionof the non-state sector is rather broad. In Uzbekistan only firms directly ownedby ministries and production associations seem to be counted as being in thestate sector. Joint-stock firms in which the state may hold most or all of thestock, as well as other firms with a significant state shareholding, appear to beclassified as “non-state”.

Uzbekistan: state-sector share of economic activity, Jan-Jun(%)

1995 1996

National income 58.6 56.2

Industrial production 60.4 49.8

Gross agricultural production 7.0 4.9

Retail trade turnover 8.8 6.2

Total employment 34.4 30.6Sources: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of

Uzbekistan, January-June, 1996: Brief Statistical Digest.

Meanwhile, Goskomprognozstat (the State Committee on Forecasting andStatistics) claims that only 4.9% of gross agricultural production in the first halfof 1996 was produced by state-owned firms, down from 7% a year earlier. Italso says that private plots accounted for 67.1% of gross agricultural output,compared with a reported 50.5% in 1995, while the share of collective farms ingross agricultural production has fallen from 31.4% to 20.3%. However, thegovernment still controls the allocation of agricultural inputs and the distrib-ution and sale of most agricultural production and exports, while the “marketprice” at which the government buys the crop from private farms is also effec-tively set by the state (3rd quarter 1996, page 57).

Privatisation throughinvestment funds is

proposed

The government has launched stage three of the privatisation process; sellingoff large and medium-sized firms to Privatisation Investment Funds (PIFs),which are effectively mutual funds. The stock of PIFs will then be sold to thepublic. Each PIF is limited to a 35% stake in any one enterprise. However, aswith all Uzbek privatisation, the role of the state looms large. First, any firm inwhich the state owns up to 25% of the equity can establish a PIF. Second, theproportion of equity in enterprises to be sold to PIFs is limited. Of the first300 enterprises being privatised through the PIF scheme in June 1997 only

Uzbekistan 53


35% of the equity is up for sale, while from July 1997 to June 1998 some 30%of the stock in each of 300 other firms is to be sold off to PIFs. In all of thesefirms a further 21% of the equity is due to be sold, although to whom and howis unclear. As a result, the state could retain a stake of up to 49% in each firm.

Capital marketdevelopment remains a

low priority

The government continues to place little emphasis on the development of thedomestic capital market. Reflecting this, the turnover on the Tashkent StockExchange remains paltry; total turnover in 1995 was Som1.3bn and in the firstseven months of 1996 was Som1.7bn. There is little incentive for firms toobtain a stock exchange listing when most investment is provided throughadministrative fiat rather than through the market. Equally, the population isunwilling to invest savings into the stock exchange for three reasons. First, theprivatisation programme, which created some of the firms listed on the ex-change, has suffered from a lack of transparency and has blatantly favouredinsiders and government officials. Second, the stock exchange itself lacks trans-parency. Third, having had its meagre savings in effect confiscated in twocurrency reforms (November 1993 and July 1994), the population has lost faithin financial institutions.

The economy

New data claim a modestrecovery in GDP

Economic data remain scarce, with the government continuing to take the viewthat such figures are sensitive information and not for general release. However,for limited circulation within government circles the Main Computer Centre ofGoskomprognozstat (the State Committee on Forecasting and Statistics) hasproduced a new publication: The Basic Results of Social and Economic Developmentof the Republic of Uzbekistan, January-June, 1996: Brief Statistical Digest. Thepublished data are often contradictory (see below) and what the databook failsto mention is more significant than what is included. But five topics are con-spicuously absent: the budget, inventories, the exchange rate, foreign reservesand imports.

According to the databook, real GDP in the first half of 1996 was up by 1.4%compared with the same period of 1995, and real industrial production was upby 5%. In the same period of 1995, industrial production fell by 6.2% year onyear. Equally positive in the authorities’ view is the high ratio of capital invest-ment to GDP—30.8% in the first half of 1996, up from 28.5% in the first halfof 1995.

The databook puts industrial production in the first half of 1996 atSom196.1bn ($4.9bn), or 8.7% more than GDP in the same period. The discrep-ancy is probably explained by the use of gross output data which includesimported inputs. The databook states that 22% of GDP originates in the indus-trial sector, while consumer goods production—Som58.7bn in the first half of1996—is reported to account for 32.5% of GDP.

54 Uzbekistan


Uzbekistan: economic performance, Jan-Jun 1996

Real % changeSom bn year on year % of GDP

Industrial production 196.1 5.0 108.7 of which: oil & gas 59.9 2.8 33.2 machinery 8.4 4.1 4.7 chemicals 10.3 9.1 5.7 metallurgy 20.2 12.3 11.2

Consumer goods production 58.7 6.3 32.5 of which: food products 29.0 3.6 16.1 non-food products 26.3 5.8 14.6

Gross agricultural output 36.3 2.5 20.1

GDP 180.4 1.4 100.0

Note. Totals do not add in source.

Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of


Meanwhile, agriculture has dropped as a percentage of GDP from 9.1% to 6.7%in the first half of 1996 compared with the first half of 1995. This implies thatin real terms agricultural production has fallen by around 25%.

Uzbekistan: origins of gross domestic product at factor cost, Jan-Jun(%)

1995 1996

Agriculture 9.1 6.7

Industry 21.0 22.0

Construction 8.1 9.0

Transport & communications 10.1 8.7

Trade 8.5 8.6

Others incl services 24.5 26.0

Net indirect taxes 18.7 19.0

GDP 100.0 100.0Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of


Uzbekistan: components of gross domestic product, Jan-Jun(%)

1995 1996

Private consumption 57.8 58.5

Public consumption 27.7 29.0

Gross fixed investment 28.5 30.8

Changes in stocks n/a n/a

Net exports 14.0 18.0

GDP 100.0 100.0Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of


The data on the components of GDP are incomplete. The levels of publicconsumption and gross fixed investment are high in comparison with other

Uzbekistan 55


former Soviet republics in transition, while there are no figures for changes instocks. However, given the largely unreformed structure of the Uzbek economyand the government’s focus on priority industrial sectors, it is unlikely that theeconomy is destocking at present. The data indicate that net exports, whichwith losses are the balancing item in the components of GDP, accounted for18% of GDP compared with 14% a year earlier.

The grain harvest isbelow target

The Ministry of Food and Agriculture has reported that 2.74m tons of grain(bunkerweight) has been harvested this year, 39% short of the president’s targetof 4.5m tons representing self-sufficiency. Of the total grain harvest, 2.5m tonscomprised wheat. However, while below target, the 1996 harvest was still signif-icantly up on last year’s total which has been variously estimated at between2m tons and 2.33m tons. The ministry blamed the weather for the poor outturn;the winter was too cold and there was a drought in the summer. The yieldconsequently remained low, at only 1.62 tons/ha. Part of the problem has alsobeen that to achieve Mr Karimov’s targets, farms in recent years have beenforced to put more marginal land under cultivation. Of the 1.69m ha planted,490,000 ha were unirrigated and thus suffered during the dry summer. However,this was still below the figure in 1995, when 502,000 ha of the 1.33m ha sownto grain was unirrigated land.

Unofficial reports indicate that the cotton crop could be as much as one-thirdbelow the 1995 harvest of 3.93m tons. The prospective yield could be as low as1.73 tons/ha compared with the 1995 yield of 2.63 tons/ha. The downturn wasthe result of unfavourable weather conditions which forced 22.9% of the totalarea sown to cotton to be replanted (3rd quarter 1996, page 57). To date,harvesting has been proceeding slowly. According to the specialist tradejournal Cotton Outlook, by the end of September Uzbekistan had gathered one-third less of the cotton crop than at the end of September 1995. The cottoncrop is vital as it provides Uzbekistan with around 60% of total export earnings(including exports to former Soviet republics) and 75% of all hard currencyreceipts (generally trade outside former Soviet republics).

Inflation is generallyedging down

The government continues to release little information on inflation. Accordingto Goskomprognozstat, the average monthly inflation rate in the first half of1996 was 4.4%, well above the IMF-agreed monthly average for the year of1.6-1.9%. Monthly inflation in June was a mere 0.07%, but year-on-year infla-tion was 50%. The drop in monthly inflation in June is probably a result of thesharp contraction in money supply (see Economic policy). The government isnow forecasting monthly inflation in December of 2%. However, to get to thetop range of the IMF target of 21-25% year-end inflation, prices would have todrop by 0.6% per month in the period between July and December. However,even the high year-on-year inflation figures may be an understatement. Thegrowing spread between the official rate for the som and the bazaar rate, aspread that now stands at 72.8%, up from a 36.6% spread a year ago, indicatesconsiderable hidden inflation.

0

1

2

3

4

5

1991 92 93 94 95 96

Cotton

Grain

Uzbekistan: agricultural productionm tons

Sources: Reuters; Cotton Outlook.

56 Uzbekistan


Uzbekistan: consumer price inflation(%)

Monthly Annuala

1995Jun –2.1 383.4 Jul 0.1 326.3 Aug 0.7 286.4 Sep 4.8 239.2 Oct 5.3 189.4 Nov 4.1 136.3 Dec 4.0 116.9

1996Jan 5.3 95.4 Feb 2.7 70.3 Mar 2.3 61.6 Apr 9.8 52.1 May 2.6 46.9 Jun 0.07 50.2

a EIU calculations.

Sources: OECD, Economic Indicators: Transition Economies; BBC, Summary of World Broadcasts.

Official unemploymentfigures are much too low

Consistent with official government claims that output and social protectionhave been maintained, recorded unemployment is extremely low. Goskom-prognozstat claims that there were only 41,000 people registered unemployedat the end of June, a mere 0.5% of the labour force. However, the authoritiesstill use the old Soviet definition of unemployment, which treats only thoseunwilling to work as being unemployed. The low level of unemployment isremarkable given that the population grew by 2.6% last year to 23.2 millionwhile output has not grown since 1990. Uzbekistan has one of the youngestage-profiled populations among former Soviet republics, with a working-agepopulation of 48.3% of the total. There are no data on the level of hiddenunemployment, but payrolls, even in the labour-intensive agricultural sector,are padded. Large numbers of workers are unpaid or on unpaid leave.

Oil and gas

Oil production continuesto rise—

In the first half of this year oil production reached 153,600 barrels/day (b/d), anincrease of 6.5% on the year-earlier level. The increase in oil production reflectsthe policy of import substitution; Uzbekistan now no longer imports oil fromRussia. Oil refining and petrol production have also grown, again cutting downon the need for imports.

—but gas production hasstagnated

Gas production meanwhile rose by only 0.5%, to 25.2bn cu metres. This stag-nation is in part a result of difficulties with export markets. Uzbekistan con-sumes around 40bn cu metres of domestic production per year and exports theremainder to Kazakstan, the Kyrgyz Republic and Tajikistan. These countriesare both unable and unwilling to pay the high export prices that Tashkent isdemanding and are particularly unhappy at being forced to pay part of the gasbill to Uzbekistan in dollars and not in Uzbek som.

Uzbekistan 57


Uzbekistan: production of hydrocarbons, Jan-Jun 1996(’000 tons unless otherwise indicated)

% changeOutput year on year

Oil (’000 b/d) 153.6 6.5

Gas (bn cu metres) 25.2 0.5

Refined oil 139.9 8.4

Petrol 637.5 3.1

Mazut 1,175.6 14.6Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of



Trade continues indeficit—

Uzbekistan continues to run a large trade deficit, which over the first half of1996 rose to $348m (Som13.2bn at the official exchange rate) or 7.4% of GDP,little-changed from the $386m recorded a year earlier. According to theGoskomprognozstat (the State Committee on Forecasting and Statistics),exports grew by 4.8% year on year in the first half of 1996 to $1.45bn, whileimports grew at a lower rate of 1.6% to $1.79bn.

—but there has been amarked shift in its

direction

According to official government data, the direction of trade has changeddramatically over the past year. In 1995 some 49.5% of Uzbekistan’s exportswent to the Commonwealth of Independent States (CIS). But in the first half of1996 that had fallen to 23.5%. There has been a similarly large shift on theimport side; from supplying 44.4% of Uzbekistan’s imports in 1995, the CISnow supplies only 28.5%. The reason for the shift is that Uzbekistan is seekingto sell its cotton on the international market and to reduce its reliance onbarter deals with the former Soviet republics. The shift in the origin of importsis a result of government purchases of capital goods from Western suppliersand increased activity by direct investors.

Uzbekistan: composition of trade, Jan-Jun(% of total)

1995 1996

ExportsCotton 58.2 59.9Oil & gas 14.1 7.8Services 8.1 12.9Non-ferrous metals 5.1 3.9Minerals & chemicals 2.2 4.6Total incl others 100.0 100.0

ImportsMachinery & equipment 29.9 36.5Food 35.5 33.3Minerals & chemicals 12.3 9.4Ferrous metals 5.4 5.6Oil & gas 1.7 1.2Services 4.3 0.2Total incl others 100.0 100.0Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of


58 Uzbekistan


Little change in thecommodity breakdown

The composition of trade is broadly unchanged. Cotton remains the key exportearner, accounting for 59.9% of the total in the first half of 1996 and aroundthree-quarters of all exports to countries other than former Soviet republics.The decline in the oil and gas category reflects import substitution in oil. Onthe import side, the sharp rise in machinery and equipment imports is lessencouraging than it appears. The suspicion in Tashkent is that many of theseimports are in fact consumer goods being brought in at the advantageousofficial exchange rate.

Drastic measures areintroduced to hold up

currency reserves

The government has implemented a number of measures to conserve foreignexchange. First, on October 14 the authorities suspended the foreign exchangelicences of ten banks. Only Uzbpromstroibank (the state-owned constructionbank) and the National Bank of Uzbekistan (the state-owned foreign tradebank, the Uzbek branch of the Soviet Vneshekonombank) can now deal inforeign exchange. The Central Bank of Uzbekistan claimed that this was toprevent abuses. In fact, it was just another measure to garner dwindling foreignexchange reserves for the government. Second, a 15% duty has been imposedon “suitcase trade”, whereby large numbers of Uzbeks cross the porous borderswith the Kyrgyz Republic and Kazakstan, where consumer goods are morefreely available, and import these goods illicitly into Uzbekistan. Opportunitiesfor corruption among customs officials have been increased by the fact that thegovernment has not defined what the duty-free baggage allowance is. Third, ina measure to boost currency receipts the government banned all barter trade asof September 1, although the government has itself continued to strike barterdeals in official bilateral trade.

Business news

New telecoms deals areannounced—

The government has announced a spate of deals in telecommunications afterneglecting the sector in the past. Uzbekistan is making use of a ¥12.7bn($116m) loan from the Japanese Overseas Economic Cooperation Fund (OECF)and trying rapidly to develop the country’s decrepit telecoms infrastructure.Major recent deals include the following.

• Daewoo has a $1.25bn deal to upgrade the telephone system in 1996-2010.The company will provide a mobile telephone service to 300,000 subscribersand a paging service to 500,000 customers, with $450m required in foreigninvestment. The final $800m investment project will be a joint venture be-tween the state-owned Uzbekistan Telekom (Uztel) and Daewoo to install adigital network for landlines in the Andizhan, Fergana, Namangan, Syrdaryaand Tashkent regions. Daewoo is reported to have a 30-year exclusive operatingcontract for the landlines, with ten-year exclusive rights for the mobile tele-phone service and pagers.

• Nokia (Finland) has an order to supply a Global System for MobileCommunications (GSM) network to Uzbekistan. The first phase will be torecruit 20,000 subscribers within two years. The GSM network is to be run byUzmacom, a joint venture between Uzbekistan Telekom (Uztel) and SuperiorCommunications (Malaysia).

Uzbekistan 59


• The Ministry of Communications and the Metromedia International Group(USA) have started implementing a joint venture to provide nationwide pagingin Uzbekistan. The aim is to have paging services available in Samarkand,Bukhara and Andizhan. Tashkent already has 24-hour coverage.

—but the governmentdrives a hard bargain

However, the government’s approach to investment in the telecoms sector fallswell short of the standard offered by other former Communist states. Uzbekistanwants foreign firms to invest and operate telecoms infrastructure but it expectsthem to do so without export credit guarantees, without any sovereign Uzbekguarantees and in an unreformed pricing structure. Apart from the govern-ment’s propensity to sign exclusive deals and then to renege on them, as onecellular telephone company has found, the authorities want the foreign inves-tors to take on all the project risk. As the spokesman for the Ministry ofCommunications revealingly told the Financial Times about foreign telecomscompanies and Uzbekistan: “We don’t take risks—they take risks.”

• Newmont Corporation (USA), Mitsui (Japan) and the State Committee forGeology and Mineral Resources have set up a $20m joint venture to undertakea feasibility study for the Kyzylalmasai and Kochbulak gold deposits. Newmontand Mitsui won a tender in June to develop the deposits.

• Uzbek Khavo Yullari (Uzbek Airways) has announced a tender to moderniseSamarkand, Bukhara and Urgench airports. The OECF is providing a conces-sional loan of ¥15.526bn, while Uzbek Khavo Yullari will provide ¥1.762bn.The loan has a 10-year grace period on a 30-year maturity and comes with 2.7%annual interest.

• Case Credit Holdings Limited, a wholly-owned subsidiary of Case Corporation(USA), has formed a joint venture with the Association of Banks of Uzbekistan,called UzCaseagroleasing. The joint venture, in which Case has secured amajority holding, will try to get funding from international lenders to helpfinance sales of Case agricultural machinery.

• Germany will give DM42m ($28m) in aid to help reconstruction work inTashkent and have the domestic water supplies around the Aral Sea improved.

• Zimmer (Germany) has a contract for a new polyamide plant in the country.The factory will supply the local tyre industry and will be managed byChimvolokno Fergana (an Uzbek firm).

• The Western Mining Corporation (WMC) of Australia has secured a jointventure to mine the Zarmitan goldfield. The mine contains 24m tons of orewith an estimated gold content of 10grams/ton. Total investment has been putat around $100m.

60 Uzbekistan


Quarterly indicators and trade data

Kyrgyz Republic: quarterly indicators of economic activity1994 1995 1996

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Industrial production Monthly av

General index 1990=100 45.4 37.7 34.7 43.2 39.7 29.9 31.3 n/a n/a n/a

Cement ’000 tons 43.7 35.3 38.3 24.3 20.3 23.3 32.3 27.0 23.7 38.0a

Mining

Coal ’000 tons 27.0 24.7 16.0 23.0 16.0 10.7 12.0 13.0 16.0 4.0a

Lignite “ 52.3 46.7 31.7 58.7 36.7 15.0 21.0 42.7 27.3 18.0a

Natural gas m cu metres 3.4 3.2 3.0 3.3 3.3 3.0 2.8 2.7 2.0 2.2a

Crude petroleum ’000 tons 5.9 9.4 7.4 6.7 6.9 8.0 7.8 6.8 6.9 7.7a

Employment

Industry ’000 257 257 232 219 255 245 225 235 245 n/a

Unemployed, registered “ 3.6 6.1 8.8 11.8 18.3 28.2 38.3 46.6 63.5 n/a

Wages

Monthly earnings, ind som 258 330 392 496 519 540 587 718 668 n/a

Foreign trade Qtrly totals

Exports fob $ m 53.6 86.7 99.6 97.0 90.2 95.3 123.1 100.3 87.8 n/a

of which: CIS “ 46.8 67.7 51.7 54.2 52.1 64.9 84.6 67.6 65.9 n/a

Imports cif ” 77.3 79.8 56.4 103.5 88.7 129.2 96.7 207.7 180.7 n/a

of which: CIS “ 59.1 40.0 36.9 73.5 64.0 68.6 83.6 136.3 128.8 n/a

End-Qtr

Exchange rate som:$ 11.70 11.30 10.50 10.60 10.90 10.60 10.86 11.20 11.35 11.65b

Note. Annual figures of most of the series shown above will be found in the Country Profile.a April only. b End-April.

Tajikistan: quarterly indicators of economic activity1994 1995 1996




Cement ’000 tons 17.0 21.7 12.7 8.0 5.3 6.3 7.7 6.7 3.3 2.0a

Mining

Coal ’000 tons 14.7 9.3 6.0 5.7 4.0 1.7 1.7 3.7 2.7 1.0a

Natural gas m cu metres 3.7 2.6 1.9 2.7 3.2 2.6 2.9 4.1 4.2 4.0a

Employment

Industry ’000 200 204 202 194 190 195 192 183 180 n/a

Unemployed, registered “ 24.9 27.7 28.2 30.9 34.3 30.9 31.7 34.2 38.7b n/a

Wages

Monthly earnings, ind Rb/TR 63,805 69,758 62,138 64,947 79,200 1,200c 1,703 2,553 n/a n/a


Exports fob $ m 99.4 133.4 77.7 102.6 97.5 113.0 153.0 385.1 100.9 n/a

of which: CIS “ 25.7 25.3 18.0 24.0 14.7 22.0 23.3 191.6 9.0 n/a

Imports cif ” 185.1 122.7 157.6 85.4 79.9 169.4 106.7 443.2 75.4 n/a

of which: CIS “ 107.5 41.8 46.4 37.4 34.4 71.8 40.2 331.6 5.1 n/a

End-Qtr

Exchange rate TR:$ n/a n/a n/a n/a n/a 53 153 294 280 280d

Note. Annual figures of most of the series shown above will be found in the Country Profile.a April only. b Average for January-February. c Tajik rouble introduced May 1995. d End-April.

Quarterly indicators and trade data 61


Turkmenistan: quarterly indicators of economic activity

1994 1995 1996



General index 1990=100 82.1 69.7 51.9 75.1 67.9 n/a n/a n/a n/a n/a

Cement ’000 tons 86.3 50.3 51.7 41.3 44.7 n/a n/a 40.0a 37.3 52.0b

Mining

Natural gas m cu metres 3,840 3,020 2,877 2,142 3,350 n/a n/a 3,692a 3,790 3,748b

Crude petroleum ’000 tons 308 313 320 305 308 n/a n/a 323a 320 317b

Employment

Industry ’000 152 153 151 144 170 167 170 162 172 n/a

Wages

Monthly earnings, ind manat 763 808 1,500 1,928 4,400 4,664 9,800 n/a 38,268 n/a


Exports fob $ m 525.5 397.2 439.6 444.9 535.7 456.2 309.1 435.5 517.2 n/a

of which: CIS “ 362.2 336.4 369.1 332.5 358.4 233.1 271.6 309.3 61.0 n/a

Imports cif ” 136.3 221.3 189.0 342.4 87.6 170.1 148.3 314.0 292.0 n/a

of which: CIS “ 90.0 120.5 118.3 231.8 58.0 146.4 129.5 294.4 125.0 n/a

End-Qtr

Exchange rate manat:$ 10.0 10.0 10.0 75.0 75.0 75.0 200.0 200.0 3,000.0 3,200.0c

Note. Annual figures of most of the series shown above will be found in the Country Profile.a December only. b April only. c End-April.

Uzbekistan: quarterly indicators of economic activity

1994 1995 1996




Cement ’000 tons 353 452 428 328 261 276 322 280 211 272a

Mining

Lignite ’000 tons 301 322 336 298 221 234 269 278 232 225a

Natural gas m cu metres 4,432 3,774 3,313 4,207 4,406 3,968 3,544 4,066 4,526 4,235a

Crude petroleum ’000 tons 265 298 326 402 437 430 439 464 402 455a

Employment

Industry ’000 1,125 1,115 1,100 1,084 1,120 1,110 1,100 1,070 1,050 n/a

Unemployed, registered “ 16.7 19.3 19.3 21.2 27.6 32.8 28.4 26.4 28.9 n/a

Wages

Monthly earnings, ind som n/a n/a 480 660 973 1,475 1,551 2,118 2,244 n/a

Construction

Dwellings completed ’000 2.2 6.6 6.9 6.4 2.4 5.6 6.4 5.1 2.0 n/a


Exports fob $ m 767.7 527.0 449.2 1,276.3 499.0 779.7 577.8 1,243.5 453.4 n/a

of which: CIS “ 539.6 314.5 224.1 998.9 178.7 442.5 235.6 418.2 104.5 n/a

Imports cif ” 565.5 462.8 648.2 790.7 517.9 592.8 488.8 1,300.5 605.4 n/a

of which: CIS “ 376.7 216.2 375.2 378.3 220.0 273.5 316.8 439.7 187.0 n/a

End-Qtr

Exchange rate som:$ n/a n/a 17.0 25.0 26.1 30.0 33.5 35.5 36.1 36.5b

Note. Annual figures of most of the series shown above will be found in the Country Profile.a April only. b End-April.



Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan: OECD trade($ ’000)

Finland France Germany Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

1993 1994 1994 1995 1994 1995

OECD imports cifKyrgyz Republic 251 418 9,023 9,676 7,940 23,671Tajikistan 9,598 3,883 13,703 12,433 19,798 20,238Turkmenistan 28,816 6,333 49,109 25,105 40,116 49,090Uzbekistan 7,606 2,758 106,182 130,641 310,182 187,635

OECD exports fobKyrgyz Republic 116 193 1,809 4,456 20,815 37,550Tajikistan 554 11 1,179 4,210 13,996 26,847Turkmenistan 1,286 6,491 6,903 16,092 89,268 57,092Uzbekistan 1,117 6,178 27,251 50,332 321,814 374,022

Italy Japan USA Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

1994 1995 1993 1994 1994 1995

OECD imports cifKyrgyz Republic 4,019 3,813 59 190 800 8,536Tajikistan 59,157 44,664 11,363 16,348 61,800 42,138Turkmenistan 98,969 87,413 5,234 4,839 1,800 1,291Uzbekistan 124,667 213,353 36,814 26,453 2,800 19,285

OECD exports fobKyrgyz Republic 15,159 6,565 33 2,309 600 24,663Tajikistan 5,046 11,532 377 996 15,200 17,696Turkmenistan 54,647 12,025 8,331 5,799 137,400 34,127Uzbekistan 33,949 30,114 19,929 41,487 89,600 62,892



Former Soviet republics: currency status

IntroductionCountry Name Status date Remarks

ArmeniaFinal currency Dram Sole legal tender Nov 22, 1993

AzerbaijanFinal currency Manat Sole legal tender Jan 1, 1993 Manat became sole legal tender on

January 1, 1994.

BelarusInterim currency Rubel Sole legal tender Jun 1992 Sole legal tender as of November 10,1992.

EstoniaFinal currency Kroon Sole legal tender Jun 20, 1992

GeorgiaFinal currency Lari Sole legal tender Sep 25, 1995

KazakstanFinal currency Tenge Sole legal tender Nov 15, 1993

Kyrgyz RepublicFinal currency Som Sole legal tender May 10, 1993 Sole legal tender as of May 15, 1993.

LatviaFinal currency Lat Sole legal tender Jun 28, 1993 Lat phased in between March 1 and June 28, 1993.

LithuaniaFinal currency Lit Sole legal tender Jul 20, 1993 Lit phased in between June 25 and July 20, 1993.

MoldovaFinal currency Leu Sole legal tender Nov 29, 1993

RussiaFinal currency Rouble Sole legal tender 1993 Soviet roubles issued between 1961 and 1992 withdrawn.

Russian 1993 rouble is devoid of Soviet emblems.

TajikistanInterim currency Tajik rouble Sole legal tender 1961, 1993 Tajik rouble replaced the Russian rouble on May 11, 1995.Final currency Somon Delayed No date set

TurkmenistanFinal currency Manat Nov 1, 1993 Multiple exchange rate system abolished April 8, 1996.

UkraineFinal currency Hryvnya Sole legal tender Sep 2, 1996 The Hryvnya superseded the karbovanets

(introduced November 13, 1992).

UzbekistanInterim currency Som Parallel Nov 29, 1993 Introduced as a coupon to circulate

in parallel with the rouble as of November 29, 1993.Final currency Som Final Jul 1, 1994



Former Soviet republics: exchange rates

Exchange rate per $

Jul 4, Oct 3, Jan 6, Apr 9, Jul 3, Oct 6, Jan 5, Apr 4, Jul 5, Oct 4,

1994 1994 1995 1995 1995 1995 1996 1996 1996 1996

Outside rouble zone

Armenia (Dram) 310.10 356.68 403.57 406.91 408.20 400.00 402.00 404.23 409.82 412.32

Azerbaijan (Manat) 995 n/a n/a 4,395 4,395 4,395 4,440 4,376 4,300 4,304

Estonia (Kroon) 12.6 12.4 12.5 11.2 11.1 11.4 11.6 11.9 12.2a 12.2

Georgia (Coupon) 1,000,000 2,060,000 n/a 1,300,000 1,300,000 1.28b 1.17 1.26 1.25c 1.27

Kazakstan (Tenge) 45 50 n/a 60.5 63.6 61.4 64.3 66.0 66.9 70.0

Kyrgyz Republic (Som) 11.3 n/a n/a 10.90 10.60 10.86 10.95 11.45 12.40 13.25

Latvia (Lat) 0.55 0.54 0.55 0.51 0.51 0.54 0.54 0.54 0.56d 0.55

Lithuania (Lit) 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00d 4.00

Moldova (Leu) 4.05 4.19 n/a 4.49 4.54 4.54 4.53 4.58 4.65 4.61

Turkmenistan (Manat) n/a 75e n/a 230 230 500 2,100 2,500 3,935 4,075

Ukraine (Karbovanets) 44,500 75,000 104,837 132,900 142,693 172,000 179,900 189,100 178,900 1.77f

Uzbekistan (Som)g 7g 17 n/a 26.1 30.3 33.8 34.6 37.0 37.8 40.0

Inside rouble zone (local parallel

currencies & Russian rouble)

Belarus (Rubel) 27,350 5,900 11,195 11,500 11,500 11,500 11,500 12,200 15,500d 19,300

Russia (Rouble)2,008.5 2,674.5 3,880 4,961

4,548 4,495 4,674 4,825 5,131a 5,424

Tajikistan (Tajikistan rouble)h 51hi n/a 300j 280 280 298

a July 9. b Coupon replaced by Lari. c June 5. d June 10. e August 18. f Karbovanets replaced by Hryvnya on September 2, at the exchange rateof HRN:KRB100,000. g Som-coupon replaced by Som on July 1, at the exchange rate of Som-coupon 1,000:Som1. h Used the Russian roubleuntil May 11, 1995, when the Tajik rouble was introduced. i June 16. j February 2.

}



Former Soviet republics: GDP and GDP per head(purchasing power parities)

1989 1990 1991 1992 1993 1994 1995

ArmeniaGDP $ m 14,943 14,457 13,713 6,721 5,875 6,068 6,530 per head ($) 4,294 4,084 3,798 1,821 1,550 1,709 1,866

AzerbaijanGDP $ m 21,777 20,049 20,705 16,466 12,992 10,376 8,806 per head ($) 3,076 2,804 2,872 2,228 1,760 1,389 1,223

BelarusGDP $ m 50,135 50,598 51,991 48,292 43,800 35,160 32,435 per head ($) 4,901 4,932 5,062 4,684 4,228 3,397 3,119

EstoniaGDP $ m 8,072 7,583 6,932 6,111 5,731 6,136 6,528 per head ($) 5,122 4,790 4,390 3,958 3,803 4,070 4,375

GeorgiaGDP $ m 23,429 21,398 19,183 11,767 7,352 5,263 5,125 per head ($) 4,299 3,919 3,533 2,163 1,349 966 940

KazakstanGDP $ m 71,934 74,399 68,245 61,005 54,517 41,589 38,835 per head ($) 4,371 4,477 4,081 3,612 3,214 2,442 2,271

Kyrgyz RepublicGDP $ m 11,041 11,879 11,737 9,045 7,795 5,875 5,648 per head ($) 2,550 2,706 2,637 2,014 1,721 1,291 1,228

LatviaGDP $ m 14,544 14,633 13,635 9,107 7,951 8,180 8,217 per head ($) 5,447 5,480 5,126 3,463 3,070 3,208 3,249

continued



1989 1990 1991 1992 1993 1994 1995

LithuaniaGDP $ m 27,288 26,644 23,996 16,027 13,730 14,181 15,044 per head ($) 7,395 7,162 6,416 4,285 3,681 3,812 4,050

MoldovaGDP $ m 16,041 16,473 15,094 10,996 10,300 8,195 8,147 per head ($) 3,688 3,778 3,462 2,528 2,362 1,884 1,852

RussiaGDP $ m 856,913 875,550 865,043 759,951 711,875 636,240 626,060 per head ($) 5,801 5,904 5,821 5,111 4,793 4,290 4,224

TajikistanGDP $ m 9,919 10,176 9,832 7,183 6,551 5,266 4,728 per head ($) 1,915 1,920 1,810 1,287 1,162 916 815

TurkmenistanGDP $ m 10,018 10,654 10,559 10,275 9,488 7,762 6,762 per head ($) 2,798 2,903 2,823 2,683 2,420 1,940 1,610

UkraineGDP $ m 246,364 247,613 223,010 197,750 168,400 130,360 117,852 per head ($) 4,765 4,777 4,293 3,799 3,264 2,539 2,291

UzbekistanGDP $ m 44,809 47,465 49,117 44,866 44,928 44,749 44,950 per head ($) 2,228 2,312 2,350 2,068 2,055 2,002 1,989Sources: IMF; World Bank, Statistical Handbook of States of the Former USSR; United Nations Economic Commission for Europe, Bulletin for Europe, Vol 44 1992; EIU calculations.



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