Hudson Institute Presentation

KG Eagles “Flying in Circles” Past 20 yrs

Seyitbek Usmanov

Director & Co-Founder

Central Asian Free Market Institute

Summary

I. KG eagles flying in circles: pol & econ

II. KG- flip flop partner of US

III. US should support liberal youth

Political Leadership Change?

None

(Akaev & Bakiev’s MFA)

President

KG Eagles “flying in circles”

R. Otunbaeva

A. Atambaev

O. Babanov

A. Keldibekov

F. Kulov

(Bakiev’s PM & Econ Min)

Prime Minister(Bakiev’s head of Tax &

Social Fund)

Speaker of Parliament

“Find 3 Differences”

2005 revolution heroes 2010 revolution heroes

* Notice Beknazarov’s outfit- same

R. Otunbaeva: Chameleon?Best of any regime

Communist dissertation

Communist career

Democrat

Neo-Democrat

President

“Critique of Falsification of Marxist-Leninist dialectic by philosophers of Frankfurt school”

Soviet ambassador to UNESCO

Akaev’s 1st MFA

Bakiev’s 1st MFAThe #1

1975

1989

1991

2005

2010

USSR Akaev Bakiev Otunbaeva

Economic Leadership?

None

Economic Leadership… NONE

No economic vision

– PM has not released his economic vision

– No major reforms accomplished, nor planned

Biggest accomplishments

– Teachers salaries increased 3x to $250

– KG intends to join Customs Union

– KG intends to cut # of ministries from 20 to 17

Economic Picture

Shares of 2010 GDP

42.9%

11.8%2.2%

3.1%

18.6%

8.4%

3.6%

9.4%

Agriculture

MiningElectricity Output

Construction

OtherFinancial Services

Trade

Nominal GDP 2010 was ~$5B

Source: National Statistics Agency

Transport & Communication

Core of economy• Agriculture (43%)•Trade (19%)•Mining (12%)

Economic Turbulence

Overall economy

– Fuel troubles by RU since 2010 (RU provides 80% of fuel)

– Taxes, then quotas

Agriculture

– Disappointing harvest expected in 2011

– Due to quotas on diesel (max 20L of diesel)

Economic Turbulence

Trade

– Customs Union devastated Dordoi bazaar (60k jobs)

– Dordoi is largest bazaar in Central Asia

Southern KG

– KG-UZ border closed since April 8, 2010

– Kara Suu Bazaar devastated (20k employed)

Unprecedented Budget Deficit

11,067 11,597 12,108 13,554 16,242

17,883

22,268

29,480

36,943

50,034

61,583

88,627

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Budget Expenses ('000 som)

OFFICIAL BUDGET DEFICIT(30%)

TRANSFER PAYMENTS

(16%)

Tax + Non-Tax= 54% of budget

~2bln USD

Future Scenarios

Scenario A

Politics: eagles flying in circlesoAtambaev president

oKulov prime minister

Economics: dying economyoRussia to economically pester as long as US base remains

• Fuel supplies irregular, devastating agriculture and economy

o Joining Customs Union will devastate KG markets• Dordoi (60k jobs) and Karasuu (20k jobs) bazaars shut down

oUpheaval in southern KG because of closed UZ border• “If goods don’t cross borders, soldiers will”

KG, a US Partner?

KG leadership is unstable US partner

Politics:

– Current leaders no friends of US

– Mostly business ties to Russia & Kazakhstan

Economics:

– Current KG leadership has no economic vision

– No economic vision= no reforms= socio-political turmoil

– March 24, 2005= April 7, 2010= ???

Scenario B

US supports new generation

New generation implement hard core unpopular reforms

Politics

oNew Gen in power: fresh vision, unleashing energy

o Start with devastating reforms of Ministry of Internal Affairs

o Laying off redundant civil servants

Economics

o Economic shock therapy

o “Privatize everything, except soul” – Kakha Bendukidze

oDe-regulation, liberalization

How? Expose KG youth to Western values

I. Greater support for exchange & edu programs– AUCA prepares KG intellectual elite

– High school (Flex), Undergrad & Grad (Muskie)

– Peace Corps inspire rural youth

– Work & Travel: taste of USA

II. More tourist & work visas, & green cards*– Contrast: 1MM Kyrgyz in Russia who send home $1.2B

– Just 196 lottery visas issued to Kyrgyz in 2011, UZ has 5k

– Strengthen KG-US P2P ties

III. Transmit English language channels to KG– Contrast: ORT, NTV top 3 popular channels

– Example: English language in Netherlands

Summary

I. KG eagles flying in circles: pol & econ

II. KG flip flop partner

III. US should support new generation

KG stable US partner

Reference

Running in Circles by Eric McGlinchey– http://www.nytimes.com/2010/04/10/opinion/10mcglinchey.html

Otunbaeva’s biography– http://www.president.kg/ru/categories/4d78bed37d5d2e0bd5000012