Central Asian outlook

A SUPPLEMENT TO EUROMONEY – April 1997

Introduction

After years of Soviet hegemony, the countries of Central Asia finally achieved their independence in 1991. The collapse of the Soviet Union allowed the five countries of Central Asia ­ Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan ­ not only to forge new ties with the west but also with the newly industrialized counties of the Pacific rim.

Economic potential

The political stability of many of the regimes has enabled reforms to be implemented much more quickly than in other republics of the CIS. This has stemmed from the centralization of power into the hands of the presidents who have extended their period in office through referendums. Many harsh and urgently-needed reforms have taken place because of this.

The people of Central Asia have always been very market-oriented and this attitude managed to survive during the Soviet rule. This has meant that the transformation into a market economy has been far more natural than in some other republics.

Reforms

Between 1991 and 1997 the Central Asian countries witnessed the continued institutional transformation that has helped to design a regional economic pattern. The current market-oriented reforms are changing ownership relations, bringing forth institutions of market infrastructure and fresh levers for state economic regulation.

At the same time, the reforms within the region do vary because each country has reached a different stage of development. Kyrgystan and Kazakhstan were first to start the economic reform process. Their changes were more radical than those in Uzbekistan. But after five-and-a-half years of independence the results of the transformations are very different. Uzbekistan has relied on large scale investment to maintain production, but this has led in turn to a large budget deficit.

Kazakhstan boasts the greatest GDP, both absolute and per capita. Tajikistan, on the other hand, has been plagued by civil war which has hampered the country’s attempts to reform its financial system.

The privatization which was so badly required within the region has been relatively successful. Privatization has been achieved mainly through private auction and tender sales, redemption of leased property or direct sales.

The private sector accounts for 65% of all employment in Kyrgyzstan, 63% in Uzbekistan, 48% in Tajikistan and 49% in Turkmenistan. However, Kazakhstan still falls behind with only 26% of employment in the non-public sector. The banking infrastructure continues to expand, in areas such as foreign exchange and other financial services. Securities markets are also being established.

Conclusion

Great progress has been made by most countries in the region, but many challenges still remain. Some of the most difficult tasks in the transition into a market economy have yet to be tackled, such as restructuring, but the potential of the region for foreign investment currently outweighs any disadvantages.