Kyrgyzstan Table of Contents
Kyrgyzstan paid dearly for its designated role as an exporter of raw materials when the Soviet Union unraveled and retail prices began to be freed: the prices paid for raw materials rose much more slowly than did prices of finished goods. Thus, in 1992, for example, the cost of what Kyrgyzstan imported rose by fifty to 100 times, while the amounts received for exports rose by fifteen to twenty times. This explains in part why the GNP for 1992 was valued at 250 billion rubles (for value of the ruble--see Glossary), while the cost of Kyrgyzstan's imports was put at 400 billion rubles. In 1992 Russia began discounting the paper value of the Kyrgyzstan ruble, effectively devaluing the goods that Kyrgyzstan was supplying. Moscow then required that the country assume the imposed "difference" as a loan, which had the effect of increasing Kyrgyzstan's debt burden.
To escape the disparities inherent in dependence on the ruble, in May 1993 Kyrgyzstan was the first former Soviet republic to leave the ruble zone (see Glossary) and introduce its own currency, the som. This new policy earned Kyrgyzstan the hostility of neighboring Kazakstan and Uzbekistan, which had declared loyalty to the ruble and feared an avalanche of devalued Kyrgyzstani rubles entering their countries. The som, which is fully convertible to foreign currency and has a floating exchange rate, has been underwritten largely by the IMF, which has provided a large measure of stability. After introduction at a rate of two som to the United States dollar, the som traded at eleven to the dollar at the end of 1995. According to President Akayev, about half the som in circulation are backed by gold or by international loans. Although the som has received strong international backing, experts questioned the likelihood that such support would continue once other new national currencies emerged in former Soviet republics, eliminating the som's status as a unique experiment. Such doubt grew clear as Kyrgyzstan's first international loans came due in 1995, with scheduled payments of approximately US$58 million that year, rising to nearly US$100 million the next year. The republic's collapsed economy made it possible that Kyrgyzstan would become a permanent international client state.
Especially in the first year of independence, hyperinflation seriously eroded buying power (see table 10, Appendix). At the end of 1992, wholesale prices were more than eighteen times higher than in 1991. Retail prices rose 40 percent in December 1992 alone, explaining in part why retail sales declined by 64 percent from 1991, the greatest decline in all of Central Asia. Between 1990 and 1992, meat consumption dropped 20 percent, milk product consumption by 30 percent, and fats consumption by 40 percent. Beginning in 1993, however, international support for the som and for Kyrgyzstan's economy in general has kept inflation much lower than it is elsewhere in the CIS. From a high of about 1,400 percent annually in 1992 and 1993 (caused mainly by large increases in fuel costs), inflation dropped to about 180 percent for 1994 (mainly because of tighter credit and the government's reduced expenditures); the government's inflation target for 1995, set in cooperation with the IMF, was 55 percent, with monthly declines throughout the year. Prices rose by 16 percent in the first quarter of 1995, slightly above target, but budgetary expenditures for the first half of the year were far above the IMF target of 5 percent of GDP.
In the spring of 1995, average monthly pay in Kyrgyzstan was 508 som, compared with a government-estimated minimum family budget of 487 som. Earning statistics are not considered totally reliable, however. In 1995 food required an average of 61 percent of the family budget. To eliminate price distortions inherited from price support policies of the Soviet regime, the Akayev government decontrolled most prices in 1992, which had the immediate result of fueling inflation and reducing individual purchasing power. The economic decline of 1993 caused reintroduction of price controls, notably on agricultural products, and ceilings of 10 to 25 percent were placed on price increases for a wide range of retail commodities. The state Anti-Monopoly and Pricing Committee restricted pricing decisions in most of Kyrgyzstan's large enterprises. Although such institutional mechanisms did not work consistently, they encouraged development of unofficial economic arrangements and barter arrangements, which further undermined the national economy. In 1994 the government again reversed its policy, ending obligatory sale and price controls on agricultural goods that had depressed the agricultural market. The reform would nominally free farmers to negotiate commodity prices with government agencies and other buyers. However, because the government remained the only large-scale purchaser of many products, liberalizing the procurement process was not expected to have immediate effects.
Data as of March 1996
Kyrgyzstan Table of Contents