Publication: Eurasia Daily Monitor Volume: 4 Issue: 170

As food prices continue to rise in Kyrgyzstan, the potential for another political crisis is rising. Kyrgyz Prime Minister Almazbek Atambayev recently threatened to sack ministers who failed to foresee and prevent the 30% inflation rate for wheat prices in the past three months. If the domestic economic situation worsens, he might find himself out of a job.

The lack of efficient responses to the rapid price hikes for food products was partially the result of the Kyrgyz government’s preoccupation with macroeconomic issues involving the energy sector and land privatization, while failing to sustain the productivity level of the industrial and agricultural sectors (see EDM, September 6). Previously, the government had refrained from active intervention regarding market shortages, preferring to allow the economic situation to stabilize on its own. In rare cases the National Bank strengthened its control over the monetary market. As Kyrgyz political expert Alexander Knyazev notes, today the government is provoking new political instability by its lack of action regarding rising bread prices (24.kg, September 10).

Kyrgyz MP Temir Sariyev argues that today any economic growth in Kyrgyzstan is achieved without the government’s participation. Most Kyrgyz experts think that economic growth is influenced by investments from neighboring Kazakhstan and remittances from labor migrants. The inflow of cash from Kazakhstan into northern Kyrgyzstan, mainly for real estate and services, creates the illusion of a growing economy. Similarly, Kyrgyz migrants prefer to invest in real estate in Bishkek, which positively influences the local economy. According to various estimates, the number of Kyrgyz labor migrants is somewhere around 300,000-500,000 people, out of the total population of 5.2 million. In the first half of 2007 Kyrgyz labor migrants in Russia sent $252 million to Kyrgyzstan in remittances (24.kg, September 12).

According to Sariyev, Kyrgyzstan consumes 3,300 tons of wheat every day, and the government’s recent release of 15,000 tons of reserves to control the prices for bread were inadequate. Moreover, as Sariyev mentions, the government distributed wheat unequally, concentrating on the capital city, Bishkek, to prevent mass demonstrations (Akipress, September 11). Today, Kyrgyzstan lacks even a one-month supply of wheat reserves that could be used in case of emergency. The government is planning to buy 50,000 tons of wheat from abroad.

As one Bishkek resident told Jamestown, the government is working hard to keep local bakeries supplied with wheat, so that the city dwellers do not feel the shortage of bread. Rapid inflation has increased insecurity among Bishkek residents, despite the fact that they are less affected by the price increase compared to the rural population. The wheat shortage might be felt stronger in villages, but the local mass media rarely covers such cases, even though the poorest segments of the population heavily rely on wheat products. The rising prices for bread and other food products have fuelled rumors in Bishkek about future inflation rates. The current situation is often compared to the sudden inflation of 1998, when the Kyrgyz economy was affected by the default in Russia.

No one in Kyrgyzstan is able to clearly explain the growing inflation rates. The parliament and government are bogged down with mutual accusations. Yesterday, September 13, parliament officially stated that the government’s efforts to prevent inflation were insufficient and recommended to increase reserves of wheat for emergency situations. However, both the parliament and government agree that uncontrolled inflation is not caused by any particular institution or individual, but by the entire state system. This agreement will foster new debates over constitutional reform, as President Kurmanbek Bakiyev and Atambayev will unveil their constitutional models. Both the president and the prime minister will offer competing projects, but Bakiyev’s version will probably prevail.

Most Kyrgyz political and economic experts tend to blame rising international prices for the inflation affecting wheat, fuel, and other products. “Kyrgyzstan’s economy is simply too small and is significantly exposed to any [economic] changes, including on the global scale,” thinks Minister of Finance Akylbek Japarov (24.kg, September 10).

According to Kyrgyz experts, inflation might reach 6-9% in 2008. As prices for food and other products continue to grow, competing political forces in the parliament and government have seized the issue to use in their competition over the constitutional reform. However, none of the political forces may be able to offer a credible solution.