Central Asia’s Great Game Grimaces
The IMF issued a mixed forecast for the Central Asia-Caucuses region as Kyrgyzstan held its first contested presidential polls since the 2010 ouster of post-independence leader Bakiyev, and Georgia after lengthy resistance from their previous border skirmish agreed to Russia’s WTO admission. The Kyrgyz race after two years of caretaker government reflected an ingrained north-south split along ethnic lines which had brought hundreds of deaths in violent clashes and calls for reconciliation from both Washington and Moscow with their military bases there. Under a new system parliament will check the chief executive’s power in a breakthrough designed both to relieve popular discontent and attract foreign aid suspended during the bloodshed. Economic policy priorities include a revised mining code and further official debt cancellation as overseas worker remittances struggle to support consumption and the balance of payments. As an oil and gas importer the Fund predicts 5 percent GDP growth next year will be undermined by high inflation and overdue fiscal retrenchment. Energy exporters in contrast, spearheaded by Kazakhstan, will see greater expansion but also danger of overheating with aggressive spending programs. The lender comments that the budget stance often serves to curtail double-digit unemployment, with the youth cohort in particular lacking prospects. According to a separate mission the Kazakh economy will be up 6.5 percent in 2011 on international reserves, counting the sovereign wealth fund, approaching $75 billion. Inflation is above target at 9 percent despite imposition of price controls, but the banking sector remains fragile despite credit and deposit recovery. NPLs are near one-third of portfolios, and interest income has been accrued for bookkeeping purposes but not received. Tax obstacles have been removed to write-offs and prudential rules now discourage foreign-currency lending but another round of resolution efforts with proper provisioning and valuation is “critical.” Reserve requirements have recently been tightened, and more exchange rate flexibility is in order after the formal post-crisis corridor was modified. Fiscal policy should continue to be countercyclical, and more private sector dynamism and diversification could be emphasized to build on strides in Doing Business indicators, the IMF concludes.
The sovereign wealth arm run by President Nazarbaev’s brother-in-law has taken stakes in the biggest institutions and has alarmed foreign investors with requests for increased ownership of flagship hydrocarbon projects after joint venture terms were set. As it marks 20 years of independence with FDI over $100 billion, the harsh BTA international creditor haircuts may as well be revisited and reinforced on sluggish earnings and the inability to locate and seize assets stashed abroad by the former owner, who fell out with the president in a family quarrel amid the area’s sweeping arguments.
