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     Mar 26, '14

Staring past Central Asia's strongmen
By Julika Peschau

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

Last month, the National Bank of Kazakhstan devalued its national currency tenge by 19%. The move followed a 5.4% weakening of the ruble to which the tenge is pegged in a currency basket. While the depreciation is supposed to increase Kazakh

exports' competitiveness, large parts of the population saw their savings lose in value for the third time in two decades. Although rules on public protest are very strict in Kazakhstan, around 50 people gathered to show their disapproval before the National Bank in Almaty. [1] Resentment also erupted in the Internet.

It is worth paying attention to these protests because the current difficult economic situation in Kazakhstan threatens a somewhat tacit agreement existing between the ruling elite and the population since the dissolution of the Soviet Union in 1991 launched the era of independence and transition to market economy in Central Asia: people forego certain civil liberties and democratic privileges for relative social and economic stability.

While several cross-country surveys in the last decades have not provided clear-cut evidence on the relationship between growth and democracy [2], successful economic growth trajectories of East Asian Tiger states have been attributed to their authoritarian modes of governance. [3]

However, the case of another region on the same continent requires a more cautious approach to such generalizations: if Asia's growth model is inherently based on an autocratic regime-type, why are China's least developed neighbors in Central Asia still low-income economies with the only exception being Kazakhstan, which is blessed by easily accessible natural resource wealth?

Authoritarian leaders in Central Asia seem to have appropriated the discourse on developmental dictatorship. In his 1997 annual speech to the nation Kazakh President Nursultan Nazarbayev emphasized that "there is no future for the country where political parties and movements tear the society apart, where there exists enormous unbalance ... between liberalism and democracy and the might of the state".

Ever since he became president in 1991, he has positioned himself as a strong leader to guarantee regional stability, promote economic reform and to avoid internal ethnic upheavals. [4] The oil and gas revenues of his rentier state provide the ruling elite with coercive and redistributional capacities. In this regard, President Nazarbayev's unchallenged time in office fits the "stationary bandits" theory of autocratic government: promoting economic development is a safe way for any authoritarian leader to increase his private consumption through growth-induced tax revenues. [5]

In contrast, Kyrgyzstan shows how Western institutions pushed for rapid liberalization in the belief that "democracy first" would be the best growth path to attract foreign direct investment and integration into global markets. Subsequently, NGOs flooded Kyrgyzstan, turning it into what Boris Petric calls a "globalized protectorate" under the aegis of multiple states, international organizations and NGOs. [6] Economic growth did not materialize and on-going disputes about the state's involvement in the Canadian-owned Kumtor Gold Mine restrain further foreign investment into the largely unprospected mineral reserves. [7]

At the same time, natural resource exploitation in other landlocked Central Asian countries brought about the features of what Oxford scholar Paul Collier defines as the natural resource trap: corruption, exposure to commodity price volatility, neglected other industries and poor human capital investment. [8]

What does this mean for stagnating Central Asian economies?

Experiences of emerging economies in Southeast Asia may help to enhance economic performance in Central Asia where corruption is a wide-spread structural problem. Informal networks, money-laundering and drug-trafficking make Central Asian countries rank at the bottom of Transparency International's corruption index. [9]

Singapore faced similar problems during British colonization until 1963 but has now emerged as the world's fifth-least corrupt country in the world. Singapore provides an example of how to crack down on corruption with a tough penal code and by raising wages in the public sector. [10] For Central Asian states, this requires most and foremost the political will to establish an anti-corruption agency operating independently of governmental influence.

In East and Southeast Asia, industrial clusters have become drivers of regional and national growth in small and formerly isolated economies. [11] The IT-industry in Bangalore and button production in China's Qiaotou represent pioneer examples of cluster scale economies, specialization and regional integration that have flourished along the coast of East Asia. In 2004, Kazakhstan adopted the Diversification of Kazakhstan's Economy through Cluster Development in Non-Extraction Sectors of the Economy. [12]

Seven economic sectors have been identified to diversify Kazakhstan's economy, including tourism, transport logistics, textiles and food-processing. [13] In each sector geographically related firms, suppliers of equipment, specialized services, infrastructure and higher education institutions come together to serve the cluster industry in the most efficient way.

With regard to tourism, contributing only 1.6% to Kazakhstan's total GDP, the rationale is to benefit from the growing global travel business. Clusters shall turn former capital Almaty into a destination for adventure tourism while East Kazakhstan is branded an eco-tourism center and West Kazakhstan develops beach tourism at the Caspian Sea. [14]

Finally, China has renewed its interest in its western neighborhood. In September 2013, President Xi Jinping signed contracts with Turkmenistan that will double Turkmen gas exports to China along the world's longest gas pipeline. China National Petroleum Company also secured a considerable stake in the Kazakh oil industry. [15]

Furthermore, security risks require cooperation between Central Asian countries and China. Beijing knows that stability and prosperity in Central Asia are crucial for the development of its restive Xinjiang provinces. New waves of instability might also be prompted by the NATO and US withdrawal from Afghanistan this year.

Chinese leadership must therefore have a strong interest in the region's economic integration. According to Jeffrey Mankov, deputy director at the Center for Strategic and International Studies, "roads, railways, and pipelines underpin China's growing economic and cultural presence in the region, and they are more likely to have a more enduring long-term impact on Central Asia's long-term development". [16]

In this respect, China has already become the region's preferred trading partner. Trade between China and Central Asian markets reached a total volume of $39 billion in 2011 - compared to a trade volume of $16.5 billion between Russia and the five Central Asian countries.

1. Lillis, J. (2014) "After Sudden Devaluation, Kazakhstan Protesters Besiege National Bank", Eurasia.org, February 12, 2014.
2. The Economist, "Are authoritarian governments an impediment to growth?", August 15, 2010.
3. Nelson, M. & Singh R. (1998) "Democracy, Economic Freedom, Fiscal Policy, and Growth in LDCs: A Fresh Look", Economic Developmental and Cultural Change, vol. 46: 677-696.
4. Olcott, M. 2010, Kazakhstan Unfulfilled Promise, Washington: Carnegie Endowment for International Peace.
5. Olson, M. (1993) "Dictatorship, Democracy, and Development", The American Political Science Review, vol. 87, issue 3: 567-576.
6. Petric, B. (2005) "Post-Soviet Kyrgyzstan or the birth of a globalized protectorate", Central Asian Survey, vol. 24, issue 3: 319-332, .
7. The Economist, "Gold in the Hills. Attitudes towards foreign investors hold troubled country back", 16 March 2013.
8. Collier, P. (2010) "The Political Economy of Natural Resources", Social Research, vol. 77, issue 4.
9. Whitlock, M. (2013) "Life and Death in Central Asia" (book review), The Wall Street Journal, July 8, 2013.
10. Anti-Corruption Regulation in Singapore, Norton Rose Fulbright, April 2013.
11. Tsuji, M. (2004), "Industrial Clusters in East Asia: Facts and Lessons for Developing Economies".
12. Cluster and Cluster Development.
13. "Diversification of Kazakhstan"s economy through cluster development in non-extraction sectors of the economy".
14. Zhidkoblonova, O. (2013), "State Policy of Tourism Industry Development in the Republic of Kazakhstan", World Applied Sciences Journal, vol. 23, issue 8.
15. Wood, B. (2013), "China Stakes out Silk Road Riches as Deal Maker Xi Charms Central Asia", The World Post, January 13, 2014.
16. Mankov, J. (2013) "The United States and Central Asia after 2014", Washington: Center for Strategic and International Studies.
17. Collier, P. (2004) The Bottom Billion. Why the Poorest Countries Are Failing and What Can Be Down About It, Oxford University Press.

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. Articles submitted for this section allow our readers to express their opinions and do not necessarily meet the same editorial standards of Asia Times Online"s regular contributors.

Julika Peschau is studying International Public Management and International Political Economy at the London School of Economics

(Copyright 2014 Julika Peschau)

Kazakh devaluation sparks social action
Feb 26, '14



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