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Update No: 259 - (25/07/02)

The Kyrgyz are in difficult position of late.

New US base
They have participated successfully in the anti-terrorism campaign, granting the US a new base at Manas, 150km from the Chinese border. This will become the largest surveillance base and airfield the US has on the mainland of Asia, outside South Korea, completing an arc from Japan and Taiwan.
The main focus of attention for the long run is obvious. But in the immediate term, the 3,000 personnel will no doubt be concentrating on Afghan developments. 
The US$54m being extended this year by the US will come in handy, plus the US$5m for military equipment. But problems remain.

The economy in trouble
Industrial production fell by nearly 12% in the first five months to the end of May. This was largely due to one major fact, the poor performance of the Kumtor gold-mining enterprise. GDP growth in 2000 was recorded at 5.1% and in 2001 at 5.3%.
But a prospective figure of 5% for this year will not now be met. Indeed, GDP decreased 1.9% in the same period of the year. 

Strategy under review
Kyrgyzstan had a rather unusual experience of reform over the more than a decade since independence. As president, Askar Akeyev, initially had a high reputation in the West as a reformer. As a former physicist, for 17 years in Leningrad at the Soviet Academy of Sciences, he could put himself across in a different way to the usual apparatchiks who have dominated pro-Soviet politics elsewhere, notably with the other Central Asian states. His regime was at first less dictatorial than his neighbours' ones were, but has since become dismally comparable with them in this respect. Lady Thatcher became one of his early supporters. The Germans, with an ethnic German minority in the local population, have long showed an interest, another meeting of the Germ\n-Kyrgyz Economic Forum being held recently, in which financiers and business folk from the two states participate.
The result of Western interest and approval of Kyrgyz reform was an unusual extension of foreign loans, unusually high on a per capita basis. In the 1992-2001 period Kyrgyzstan received US$1,690m in foreign loans. At the request of the government the UN Development Programme's mission in Kyrgyzstan has prepared a report on the country's foreign loans for the last nine years.
The bulk of the loans, US$38.9m, came from the World Bank. Half of the loans were spent on maintaining the federal budget and the balance of payments. Some US$220m went on the social sector.
In 2001, Kyrgyzstan repaid US$52m, but only eight per cent came from the federal budget. The rest came from foreign grants. Veritably borrowing from Peter to pay Paul. Governments can get away with this better than individuals, whose similar schemes are universally condemned as pyramid loan schemes. There is no reason to suppose that this will to cease being the case so long as Kyrgyzstan remains a key player in the anti-terrorism campaign. It is significant here that the Manas base is only being rented by the US under a lease which is to be reviewed annually.

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AVIATION AND SPACE

Russia may provide S-300 rocket launchers to Kyrgyzstan

Russia is considering the possibility of providing several of the anti-aircraft rocket launchers S-300, to Kyrgyzstan, the commander of Kyrgyzstan's anti-aircraft defence Igor Kurbatov said on 10th July, ITAR-TASS News Agency has reported. The terms and conditions and the likely date of the deal are still unclear.
Kyrgyzstan's air defence currently has older models of anti-aircraft systems of Russian manufacture.
This year, Russia has provided to Kyrgyzstan's anti-aircraft defence with R4.1m- worth of various equipment on a non-interest basis. Another R3.5m-worth of parts for rocket engines will be supplied shortly. Since 1998 the Russian Defence Ministry has provided R14m-worth of equipment to the Kyrgyz anti-aircraft defence.
The Russian embassy's military attaché, Vladimir Varfolomeyev, has said in Bishkek that Russia is interested in maintaining the Kyrgyz air defence in good shape because the two countries are part of the CIS anti-aircraft defence space.

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FINANCIAL NEWS

UNDP issues report on Kyrgyz loans

In the period 1992-2001 Kyrgyzstan received US$1.690bn in foreign loans, an official from the UN Development Programme's mission in Kyrgyzstan stated, as quoted by Kabar News Agency. At the request of the Kyrgyz government, experts from the UN Development Programme have prepared a report on the country's foreign loans over the past nine years. 
Most loans, US$389m, were provided by the World Bank. UN experts said that over half of these funds (some US$1.5bn) were spent on maintaining the federal budget and the country's payment balance. Nearly US$220m went to the social sector. In 2001, Kyrgyzstan repaid US$52m of the debt, but only eight per cent came from the federal budget. The rest was provided by foreign grants, the document said. The report said that Kyrgyzstan will be able to repay its debt without putting a heavy burden on the federal budget, but only given stable economic growth, better tax collection and downsizing the scope of the shadow economy.

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FOREIGN LOANS

EBRD supports Micro and Small Enterprises in Kyrgyz Republic

Noreen Doyle, First vice President at the European Bank for Reconstruction and Development, has launched a US$15.3m facility to supply the growth of Micro and Small Enterprises (MSEs) in the Kyrgyz Republic. The facility, co-financed by the Swiss government, the US government and the International Finance Corporation (IFC), will provide credit lines to Kyrgyz commercial banks for on-lending finance to local entrepreneurs in amounts ranging from US$50 to US$50,000.
Small businesses account for at least 60 per cent of the Kyrgyz work force, but financing via local Kyrgyz banks is still limited. Noreen Doyle said this facility would help to relieve part of that funding gap. InExim Bank is the first to sign under the facility and within the coming months the EBRD expects to expand this to include three new partner banks. Ms Doyle said small business are critical for economic development in the Kyrgyz Republic. As well as supporting local entrepreneurs, she said the facility should help to strengthen the country's banking sector, both of which are crucial for developing market economies.
The credit lines are twinned with technical assistance funds provided by the European Union and USAID to support the partner banks in developing efficient lending programmes. The funds will enable specialists to assist the partner banks in establishing departments specialising in micro and small enterprise lending, developing products in line with the requirements of entrepreneurs and training bank personnel in adequately assessing the repayment capacity of MSEs.
The facility is similar to the EBRD Kazakstan Small Business Programme created in 1998 to support small businesses in Kazakstan. To date over 24,000 loans worth US$160m have been disbursed through that facility across the country and around 700 banking professionals have been trained through technical cooperation funds. The EBRD's Board of Directors and representatives of the shareholders of the Bank, earlier this year approved a US$75m facility for the Kazakstan Small Business Programme II.
For further information contact Jazz Singh, EBRD, tel: +44 207 338 78931; e-mail:singhja@ebrd. Com.

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