Kyrgyzstan has generally been regarded as the most rapid economic reformer in Central Asia. It was the first CIS country to join the World Trade Organization, and has been widely praised by the International Monetary Fund and World Bank for its prudent macroeconomic policies. Bishkek’s commitment to reform seemed to have paid dividends during 1996-1997, when Kyrgyzstan reported GDP growth of 7 and 10 percent, respectively (CIS Statistical Office data, https://www.unece.org/stats/cisstat/kir.htm). Kyrgyzstan’s economy, however, was hit particularly hard by the August 1998 Russian crisis. The exchange rate dropped from US$1 = 19 som in August 1998 to US$1 = 42 by the end of September 1999, and producer prices as of mid-1999 were 43 percent above their mid-1998 levels. Production and foreign trade have also fallen, with an especially sharp drop in exports. Imports have declined an estimated 27 percent this year and exports are down 10 percent. Kyrgyzstan’s foreign debt in 1999 swelled to US$1.6 billion, or more than 100 percent of GDP.
These developments raised the question of whether the successes of 1996-1997 were a Potemkin village. Fortunately, the worst of Kyrgyzstan’s post-August correction may now be over. This is most apparent in the monthly inflation figures, which show that consumer prices actually fell during July and August. Slowing inflation, along with tight fiscal and monetary policies and continued assistance from the IMF, have helped the National Bank stabilize the exchange rate: after sliding for months, the som kept its value (vis-à-vis the dollar). during most of September and October. A more stable exchange should help Kyrgyzstan’s industry (which relies on extensive energy imports). and household consumption, as Kyrgyzstan imports 60 percent of its food. A stable som will also make it easier for the government to make its estimated US$46 million in debt-service payments this year.
Although industrial output fell by some 7.4 percent during the first half of 1999, growth in investment spending and retail sales kept Kyrgyzstan’s GDP flat. If a stable exchange rate helps industrial production recover during the second half of the year, Kyrgyzstan could still report solid economic growth in 1999. For an economy that seemed to be in deep trouble earlier in the year, this would be good news indeed.
UZBEKISTAN’S SOM: INCHING TOWARD CONVERTIBILITY, OR A CRASH?