Farm Loan Scheme in Trouble

Tuesday, 22 February, 2005

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Leila Saralaeva

The Kyrgyz government has run into trouble fulfilling the terms of a Japanese aid programme. There are allegations of mismanagement and corruption, but many believe the scheme never had a hope of working in the short time-frame that was set for it.

The scheme involved loans to farmers, who now blame the government for agreeing to repayment schedules that were impossible to achieve. Officials admit they knew there would be problems even when they signed up for the grants.

Between 1996 and 2003, the Japanese government awarded Kyrgyzstan 10 grants with a total value of 16 million US dollars, to buy tractors, fuel and fertiliser which were then distributed to farmers.

The agreement was that the farms would repay the value of these items over three or four years. The funds were to be gathered in special mutual funds, and then used to repeat the loan cycle so that other farmers could benefit.

Around 1,000 farms are thought to have benefited from the grants, receiving more than 1,100 tractors and combine harvesters as well as diesel, fertilisers and other agricultural inputs.

But the farms have fallen behind in their payments and still owe around 12 million US dollars.

The circulating loan system is one that Japan has used in 60 developing countries, but its embassy in Bishkek has now issued a statement expressing concern about the way the aid money is being managed in Kyrgyzstan.

“Unfortunately, control over these funds is not effective,” read the March 3 statement. “The Japanese side asks the government of Kyrgyzstan to ensure effective control over the mutual funds, as the agricultural equipment was bought with tax money collected from the Japanese people.”

Farmers involved in the scheme say the payment schedule was doomed to fail.

“It’s unrealistic for the average Kyrgyz farmer to return such a sum in three years,” said Urkumbek Jumataev, a 72-year old farmer from the Panfilov district of the northern Chuy region.

Jumataev received a Belarusian tractor worth 10,000 US dollars in 2000, but says he has struggled to keep up the repayment – getting by only because of the fame he won as the first farmer in Kyrgyzstan to breed ostriches.

“I managed to make the first two instalments only thanks to my popularity, since last year all the Kyrgyz media wrote about my ostriches. Following the publication of one interview, where I lamented the difficulty of repaying the loan, local officials immediately helped me to sell my wheat at a good price and that is how I resolved the issue,” he told IWPR.

Another farmer, who wished only to be known as Cholpon, blamed ministry officials for not giving farmers more guidance on managing their businesses.

“Those lazy people from the agriculture ministry don’t regulate what to sow, how much to sow and where to sow. As a result, farmers are running up more and more debts,” he said.

Even officials acknowledge that the deadlines the government accepted were impracticable.

Nurbek Chushtukov, chief expert at the department for agricultural policy, economic relations and investment, part of the ministry of agriculture and water resources, explained that the repayment period was tight because the clock started ticking as soon as the Kyrgyz and Japanese governments signed the agreements.

“A year then passes before the Japanese government transfers funds to the republic’s accounts, tenders are conducted for purchases of goods and equipment, and these goods finally arrive from the manufacturers. That then leaves two years to repay of the loan,” he said.

Chushtukov said the Kyrgyz government was aware of the difficulties from the outset, but had no option but to accept the terms so as to address some of the urgent problems facing farmers.

“At the moment of signing we needed resources, we needed the machinery, and our government did not dare to insist on its own conditions. We agreed to everything in order to receive the Japanese help,” he said.

Uchkunbek Tashbaev, head of public relations at the finance ministry, added, “We said from the beginning that our farmers couldn’t return the loans in three years, but the Japanese government wouldn’t agree to extend the deadlines. They said… it is standard practice for recipient countries to agree on a return time of three to four years.

“We didn’t raise the issue of extending the return deadlines because we were afraid that the amount budgeted for Kyrgyzstan would be reallocated to Uzbekistan or Kazakstan. So we signed to avoid a delay, and to get something at least.”

As well as poor management of the loan scheme, there are reports that some of the loan goods have been misdirected as a result of corruption.

“Sometimes the loans are given not to people who work and who can return [the money] with interest, but to relatives or in return for bribes,” said ostrich farmer Jumataev. “So the foreign aid disappears without a trace.”

President Askar Akaev has spoken openly about corruption in the grant scheme, and ordered action to stop it. “I get the impression that the equipment is distributed on a tit-for-tat basis,” he said during his annual address to parliament on February 7. “New tractors are given to dishonest people who manage to bribe officials, and the people who get equipment often prove to be close relatives of corrupt local officials.”

The matter was raised again at a government meeting on February 27, and Akaev ordered the prosecutor’s office to launch an investigation.

But Chushtukov insists that the agriculture ministry ensured that the loan tractors and other items were distributed fairly, and selected the regions that benefited according to need.

“Our regional departments monitored the process, so in principle, all the assistance did reach the farmers and played an important role in stabilising the agricultural sector,” he said.

The agriculture and finance ministries are now formulating a position that will allow them to approach the Japanese government about extending the repayment schedules.

Political scientist Nur Omarov thinks that in its haste to sign up for unworkable arrangements, the government may harm its standing with donors.

“The desperate situation forced the Kyrgyz government to take great numbers of foreign credits and grants,” he said.

“Kyrgyzstan is totally dependent, and agrees to any condition in order to receive foreign aid, in the hope that it will either be written off or forgiven. This situation may result in partners like Japan losing interest in Kyrgyzstan, as an unreliable country.”

Leila Saralaeva is an independent journalist in Bishkek.