Boycott for Kyrgyz Debt Fund

A Kyrgyz government initiative to pay off its massive foreign debt by asking people to pay money into a special fund is failing largely because people mistrust their rulers, observers say.



Analysts say that low incomes and a deep mistrust of the government are the main reasons why most people are declining to contribute to a special government fund, opened at the end of May to collect donations to pay off the country’s crippling external debt.



By the start of August, only around 152,000 soms, just under 4,000 US dollars, had been donated to the fund in total.



On July 17, at a press conference in Bishkek, the head of Kyrgyz National Bank chairman Marat Alapaev said the special debt fund held a grand total of 5,000 soms or 132 dollars, which health ministry staff had donated out of their own salaries. Employees of the president’s office then paid in a similar sum after Finance Minister Akylbek Japarov urged government employees to be patriotic.



Finally, fund-raising events held by the Kyrgyz diaspora in the Russian cities of Moscow and Samara on July 24 produced another 3,500 dollars.



Kyrgyzstan’s external sovereign debt stood at more than two billion dollars in March this year. In June, the finance minister said the next three years would be the most difficult for Kyrgyzstan in terms of servicing the debt. The finance ministry says Kyrgyzstan has to repay the capital on its external debt by 2045.



Eighty million US dollars – nearly a tenth of total planned expenditures – are to be earmarked from the government budget to service the national debt, including domestic as well as foreign obligations.



In February, public pressure forced the government to abandon plans to sign up to the Heavily Indebted Poor Countries initiative, a debt-relief programme run by the International Monetary Fund and the World Bank. This could have cut Kyrgyz debt in half in return for certain reforms.



At the time, President Kurmanbek Bakiev said that Kyrgyzstan risked losing face by committing to this initiative, and that the country was capable of solving its debt problem by itself.



Alikbek Jekshenkulov, a former foreign minister and current head of the International Agency on Development and Policy, insists the voluntary scheme for collecting donations will create a sense of national unity and purpose.



“It will help raise spirits and unite the nation,” he said. “I am confident that each citizen of Kyrgyzstan will do their bit and contribute what they can to reducing the external debt burden.”



But a recent opinion poll by the Kyrgyz news agency 24.kg revealed that more than 60 per cent of respondents believed it is up to the government which incurred the debt in the first place to repay it.



Tashimir Aytbaev, board chairman of the industrial bank Promstroybank, said the lack of transparency and accountability in government discouraged people from handing over their cash.

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“People need to know that the money is going to repay the debt, and not into someone’s pocket,” he said.



Ruslan Turbatov, head of the Foundation for International Community Assistance, which runs micro-credit schemes, said people felt no personal obligation to pay off the debt.



“The lack of communication between state institutions and the public, the absence of a transparent and trustworthy accounting system, and the high level of corruption have led to a situation where the overwhelming majority of citizens is in grave doubt that the funds received from external sources have been used appropriately,” he said.



Living standards are poor in Kyrgyzstan, and the average monthly wage is less than 100 dollars.



Turbatov said that with such low salaries, it was unrealistic to expect people to club together and pay off the national debt.



Abdygany Erkebaev, a former speaker of the Kyrgyz parliament, argued that those officials who mishandled the country’s finances and got the country into debt should be held accountable for the foreign debt problem.



“To date the authorities have not told us who took out the loans, when and under what terms,” he said. “Why are we collecting money while those who accrued these debts again duck out of it?”



Hadzhimurat Korkmazov, chairman of the parliamentary committee concerned with anti-corruption measures, also believes that those “who took, misused. spent or embezzled the loans must be punished. They should repay misused loan funds.”



There has been no shortage of suggestions for raising repayment funds – or simply not paying the loans back. One member of parliament has said a threat to start growing opium poppies might make Kyrgyzstan’s international creditors relent, while another thought the present government could legitimately renege on its debt commitments since it was the product of a revolution – the popular revolt of March 2005 which ousted the then president Askar Akayev.



More practical suggestions for finding money to make the debt repayments range from issuing government securities to tightening up budget management.



Finance Minister Japarov has announced a new issue of special bonds, which will pay no interest to the holder so that the proceeds can be used to pay off the debt.



Banker Aytbaev, on the other hand, says that the government must ensure economic growth, especially production, and thus increase its own tax and other revenues. Then it will be in a position to make special assignments from the budget for sovereign debt repayment.



Turbatov calls in addition for measures to bring the presently massive grey economy out of the shadows, so that the government can tax these businesses. “We cannot count on a significant increase in economic growth rates, and hence external debt repayment, as long as there are high levels of corruption exists in all branches of government, and as long as the bulk of the business sector is part of the shadow economy and evades taxes,” he said.



Economist Sapar Orozbakov believes the politicians and officials who have acquired wealth through illegal means should be stripped of their money, and these funds assigned to debt repayment.



At the same time, Orozbakov accepts that there is no realistic quick fix for the problem.



One way of generating funds would be for Kyrgyzstan to seek the repayment of its loans to other countries. “We must mobilise our assets abroad, namely the debt owed by Ukraine and the Baltic states, which come to around 30 million dollars,” he said.



Like Aytbaev, Orozbakov says that in the end, Kyrgyzstan’s ability to pay its debt will depend on a period of sustained economic growth.



“If our country is capable of generating economic growth at rates of at least seven per cent a year, it can service its external debt without particular difficulty. Kyrgyzstan will gradually repay its debts without a substantial damage to economic and social development,” he said. “However, if current GDP growth trend is maintained [2.7 per cent in 2006], the country will not repay its old debts and will have to borrow more money and thus increase the size of its total debt.”



Jipara Abdrakhmanova is an IWPR contributor in Bishkek