Kyrgyzstan steels for slowdown
By Igor Gorbachev and Yrys Kadykeev
BISHKEK - As the Kyrgyz government takes steps to counter the effects of
international financial crisis, analysts say the banking and construction
sectors are already feeling the pinch.
In December, the government approved a set of measures designed to ensure
economic stability through the current period of turbulence. The three-pronged
strategy will seek to boost economic growth, bring inflation down to
single-digit figures and insulate the most vulnerable sections of the
population.
The International Monetary Fund (IMF) has approved a special
loan of US$100 million to fund the programme.
Expectations of a slowdown are reflected in the IMF's prediction that growth
will fall to 3.7% in 2009 compared with an estimated 7.5% last year.
President Kurmanbek Bakiev spelled out how his government plans to stimulate
growth at a meeting in early December 1. According to his press office,
government money will be injected into new construction projects around the
country to create jobs and offset unemployment.
Although it is clear from the government's published economic programme that it
is well aware of the economic risks, official statements are carefully tailored
to avoid any sense of panic. At a cabinet meeting in mid-November, for example,
Bakiev said, “We are having a difficult situation due to global economic and
financial crisis. But nevertheless, there are no grounds for talking about a
catastrophic crisis in our country."
The minister for economic development and trade, Akylbek Japarov, was
reportedly reprimanded for expressing his concerns in blunt terms in early
November.
"Our state is effectively on the verge of the financial crisis," he said. The
economic situation in Kyrgyzstan may worsen in February-March 2009."
Economists note that because the Kyrgyz economy is relatively isolated, it was
not immediately exposed to the crisis. Local banks did not borrow from abroad,
and the country does not have a well-developed stock market.
That led the deputy chairman of the central bank, Kubanychbek Bokontaev, to
state confidently that "Kyrgyzstan's banking system will not be hit by the
financial crisis as badly as Russia, Kazakhstan or China were".
Nevertheless, economists say that far from being immune, the country is already
suffering in a number of ways. In recent years, Kazakhstan's successful banking
sector has branched out into its smaller neighbor, and now accounts for 60% of
the basic assets of banks in Kyrgyzstan, according to that country's central
bank.
Since late 2007, Kazakh banks have been pulling in their horns after finding
themselves dangerously exposed with high levels of borrowing on the
international market. That has had knock-on effects on their Kyrgyz operations.
Rita Karasartova, a lecturer in the finance department of Kyrgyzstan's Academy
of Management, explained how the commercial banks were locked together in a web
of transactions, and as these operations slow, interest rates could rise and
banks would run short of money to lend.
"Even a psychological environment in which people are thinking about where to
put their money ... will prompt them to withdraw it from the banking system,"
she said,
To counter the risks to the commercial banking sector, President Bakiev issued
a decree on January 8 ordering the creation of a "refinancing fund", which will
use money from the central bank to keep local banks solvent. Central bank
chairman Marat Alapaev said the fund will offer short-term loans to commercial
banks if they run into liquidity problems.
One area where banks and the economy as a whole have seen a downturn in
cashflow is the remittances that Kyrgyz labor migrants send home from abroad.
Depending on the time of year, there are perhaps half a million of these
people, mostly in Russia but increasingly also in oil-rich Kazakhstan.
Unofficial estimates put the number of Kyrgyz migrants working abroad at
500,000. Many work in the construction industry, which has boomed in those
countries in recent year but has been one of the first areas to feel the crunch
as credit availability has collapsed.
For a poor country like Kyrgyzstan, the sums they send home are substantial,
and many households are kept afloat by this money, as are the businesses they
buy from.
Adam Beishenaly, head of economic analysis with the government's financial
markets regulator, said that in 2007, migrant remittances were put at over $1
billion, equivalent to the country's gold and foreign currency reserves.
In a December 22 statement, economic development minister Japarov sounded an
upbeat note about the state of the remittances, noting that they had grown.
However, his statement referred only to figures for the first nine months of
2008, omitting the last quarter, when job losses really started to bite in the
migrant labor market.
In an extensive report in December, IWPR found that there was no evidence of a
mass exodus of migrant workers from Russia and Kazakhstan yet, as even those
made unemployed were keen to hang on for as long as they could. However, the
prediction was that the real job crunch might only make itself felt in the
spring, when building companies normally take on new workers for the season.
Kyrgyzstan's construction industry is already in recession, according to the
chairman of the national association of builders, Askarbek Moldobaev, who says
40% fewer buildings were put up in 2008 than the year before.
Karasartova said, "Even now it is clear that work at some construction sites
has halted, and this could mean job losses."
The slowdown in the sector both here and in Kazakhstan has had the perverse
effect of increasing demand and prices for building materials, because these
are being produced in smaller amounts.
"Our costs have gone up because of the increased price of building materials,
as well as general price rises," said the director of a building firm in
Bishkek. "The pace of construction has now slowed, and we're hoping we can at
least complete our ongoing projects and after that we'll stop borrowing and not
expand our business."
It is significant that in a country where a popular uprising has ousted the
then president Askar Akaev in 2005, more people are now worried about recession
than about a repetition of the political upheaval.
In an opinion poll conducted by the International Republican Institute last
month, over 40% of respondents said their main concern was economic crisis, in
contrast to a previous survey that suggested most people feared social unrest
and revolution.
Igor Gorbachev is a correspondent with the online news agency 24.kg. Yrys
Kadykeev is a pseudonym for a journalist in Bishkek.
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