Economic Condition of the Economy
Kyrgyzstan, having become an independent state, entered the global community as a developing country undergoing a transitional process towards building a truly democratic state with a market economy.
The economy of Kyrgyzstan was based on intra-union division of labor, which initially laid down disproportions, and therefore it was supported by large subsidies, which accounted for 10+13% of GNP (Gross National Product) in 1989-1991. In the national economy of Kyrgyzstan, two unconnected complexes emerged: the sectors of the agro-industrial complex (AIC) with their predominantly raw material orientation and machine engineering production, as well as mining and metallurgical complexes, which were almost entirely dependent on orders and supplies from outside the republic. As a result, there is economic and social disintegration between urban and rural areas, and an enclave nature of industrialization, where industry is concentrated only in large industrial centers.
In recent years, the economy of Kyrgyzstan has been struck by:
- a sharp decline in production;
- triple-digit inflation rates;
- a growing budget deficit.
Production growth ceased in 1989, and the rates of decline increased, with the volume of national income produced in 1992 shrinking by almost 30% (33.5% in the CIS), consumer goods production down by 32%, industrial output down by 27%, and agricultural production down by 24%. The composite price index and tariffs for consumer goods and paid services during this time amounted to 1974.5% (in 1991-1992 - 1896.7%), while monetary incomes of the population increased only 8.8 times. The budget deficit in 1992 amounted to 11.8% of GNP.
Reasons:
- a reduction in orders from CIS countries for goods, machinery, and equipment produced by the republic's industry;
- a sharp rise in prices for imported energy carriers, metals, timber, raw materials, and components for industrial production, along with a simultaneous reduction in their supply quotas;
- cessation of external subsidies;
- wear and tear of production and transportation equipment;
- predominance of spontaneous elements in reforms;
- widespread decline in executive and contractual discipline and responsibility.
In 1992-1993, we, like other CIS countries, moved along with the economic upheaval initiated by the radical liberalization of prices carried out by Russia in early 1992. Thus, prices for energy carriers skyrocketed 1200 times compared to 1990, while prices for agricultural products, the basis of our exports, increased only 100-120 times. Hence, the enormous passive trade balance with CIS countries, which in just nine months of the current year amounted to 187 million soms with Russia, 7.6 million soms with Kazakhstan, and 115 million soms with Uzbekistan.
In 1993, we made known efforts to overcome the crisis trends in the economy, and extraordinary measures were taken by the Government at the beginning of the year. However, they were not fully implemented, although it was possible to slow down the pace of production decline and curb inflation. Thus, GDP fell by 15.4% over nine months (in 1992 - by 26%), while inflation in the summer months decreased to 16-18% compared to 40-59% at the end of 1992.
As a result, the economy of Kyrgyzstan is still in a deep crisis. What has been done over these years as a result of the economic reforms?
The foundations of a market economy have been laid: institutions of private property, private entrepreneurship, and free entrepreneurial activity in cities and villages have been created.
Although in an embryonic form, the market mechanism is still functioning, determining prices based on the relationship between supply and demand and, conversely, regulating the relationship between supply and demand based on price fluctuations. However, it should be acknowledged that market relations are still underdeveloped and imperfect. The most important thing is to launch the mechanism of free competition among producers under conditions of free pricing, so that industrialists and entrepreneurs, competing with each other, can more fully, qualitatively, and cheaply meet consumer needs. Until competition—the main catalyst of the market—starts working, the economy is doomed to stagnation and regression.
No country in the world, including the developed countries of Eastern Europe, which transitioned from a command-administrative economy to a market one, has managed to avoid a certain period of chaos in economic order and rules, which was inevitably accompanied by a sharp decline in production. This was also characteristic of the economy of Kyrgyzstan in recent years. Such is the law of nature: any system can only be transitioned from one order to another through a chaotic state.
But now is the decisive moment for organizing new, market-oriented rules of economic management, as sufficient experience has already been accumulated, and their positive and negative consequences are visibly evident. Then decisive, operational, and effective actions are needed.
In this regard, the Government must:
- decisively support the sprouts of a market economy, conduct a policy of strengthening and developing market infrastructure;
- stimulate the creation and active operation of a wide network of small and medium enterprises producing goods and products in high demand;
- consistently and consciously reduce its intervention in the activities of independent economic entities in the form of administrative regulation, simplifying and unifying the conditions for economic activity.
It is necessary to always remember and for all citizens of the republic to understand that there are no easy paths, nor are there magical means to alleviate the heavy burden of reforms, and that no one but ourselves can change our lives. We may receive help, as many countries near and far are doing today, but no one will conduct our reforms for us.
