BACKGROUND: Kyrgyzstan has been facing a severe economic crisis since August 1998. Economic stability has been weakened. The consumer price rate increased from 18% in 1998 to 36% in 1999 (higher than the 1995 level). The national currency, the som, was depreciated by 36% against the dollar in 1999. On a positive note, production has been less affected by the crisis. Last year, the GDP rose by 3.6% even though industrial production decreased by 1.7%. The trade deficit has been reduced to 80 million dollars from 220 million dollars in 1998 and according to the 2000 budget, the deficit will be reduced by 7.5%.

Kyrgyzstan’s domestic financing is very limited contributing to only 6% of the budget deficit in 1998. This is why Kyrgyzstan must seek external financing. In April 1999, the IMF warned that the "present fiscal position in the Kyrgyz Republic [is] not sustainable." The IMF calculated that Kyrgyzstan's fiscal sustainability could only be reached in 2004 with optimistic assumptions combined with a strong economic adjustment plan.

Last year Kyrgyzstan sounded the alarm when, unable to reimburse several Turkish non-concessional loans, it had to negotiate debt restructuring and a new reimbursement schedule. In December 1999, Armangeldy Muraliev acknowledged that the country's foreign borrowing has amounted to US $1,296,000,000 dollars since 1991, representing more than 80% of the GDP. And since 1995, external indebtedness has doubled.

IMPLICATIONS: As Kyrgyzstan's level of indebtedness is high, it is possible that the donor community might restrain its financial support of Kyrgyzstan in the coming months but not to the extent of letting it default. For Kyrgyzstan, a partial withdrawal of aid would mean that it could no longer obtain financing without a substantial in-depth structural reform of its economy and politics. Kyrgyzstan must tackle the issue of corruption that plagues the country. Even high-level Kyrgyz officials acknowledge publicly that many loans have been partially embezzled. In the political arena, the government must realise that democracy is no longer just something to be talked about in Kyrgyzstan.

Of the Central Asian countries, Kyrgyzstan is now the highest per capita beneficiary of multilateral aid. It is likely that foreign donors will continue to support Kyrgyzstan because of its strong symbolic and political significance for western countries. As USAID officials declared, Kyrgyzstan "has become a 'laboratory' for demonstrating that democracy can work in Central Asia." As the real or imaginary "island of democracy" in Central Asia, Kyrgyzstan is a "protégé" of the international community that will not let Kyrgyzstan fail.

On 20 December 1998, Kyrgyzstan became the first CIS country to obtain full membership in the World Trade Organization (WTO). When Kyrgyzstan entered the WTO, it was described as a major symbolic accomplishment in the process of achieving economic and political reform. Last year, Kyrgyzstan was selected as a pilot country in the CIS region to implement the World Bank’s Comprehensive Development Framework. For years, Kyrgyzstan has been described as "an island of democracy" in Central Asia mainly because of its positive contrast to the poor records of all other Central Asian countries regarding human rights and democracy. However, Kyrgyzstan's actions during the present election process have tarnished its "island of democracy" image.

CONCLUSIONS: Within the Central Asian context, Kyrgyzstan's political and economic stability is crucial for western countries. Westerners seem to be ready to pay the price for stability in Kyrgyzstan even if its image as an "island of democracy" slips. The main multilateral donors have declared over the last months that they would respect their commitments vis-à-vis Kyrgyzstan. European Union and USAID assistance will be extended through the year 2000. Significantly, the Americans and Europeans will combine efforts to help Kyrgyzstan realise maximum benefits from its membership in the WTO. Up to the present, even though Kyrgyzstan has been extremely open economically, its landlocked geographic location within Central Asia has greatly hindered it from taking advantage of its open economic policies.

It is probable that foreign assistance to Kyrgyzstan will be reinforced in the following months. Perhaps such assistance combined with strong warnings from its international backers will bring needed economic and political changes to Kyrgyzstan. Former Kazakhstan Prime Minister Akezhan Kazhegueldine has stated with optimism the belief that growing dependency on foreign aid and investments will lead inevitably to economic and political reforms. In Kyrgyzstan's case, economic dependency might indeed serve to make Kyrgyzstan the "shining star" of democracy in Central Asia. On the other hand, it could make it a hollow island of dependency.

AUTHOR BIO : Gaël Raballand specializes in the study of economies in transition. In 1999, he served as an OSCE economic/environmental officer in Kyrgyzstan. He currently is a doctoral student at the Sorbonne University.

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