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.
What is necessary to overcome difficulties?
For the success of reforms, the recovery of the economy, the development of international cooperation, and the strengthening of state sovereignty, confidence in social and political stability in the republic, at least for the coming years, is absolutely essential.
What provides such confidence?
Firstly, a stable civil peace and interethnic harmony.
Secondly, national unity and a desire for economic growth.
Thirdly, a correct economic policy and the creative efforts of the population to embrace all that is new, which forms the basis of economic reforms.
Fourthly, a strong executive power that enjoys the trust of the people and is capable of consistently and persistently implementing reforms.
Fifthly, a legislative parliament capable of promptly carrying out legal reforms.
Is it necessary to say that to exit the current severe economic crisis, the selfless efforts of all citizens of the republic are required, and colossal work is needed to mobilize all internal resources?
It should be noted that we will not achieve success until we rely on national unity, healthy national feelings and dignity, national spirit and self-awareness, and the national traditions of our people. It is precisely the reliance on strong national feelings that has allowed many countries to create a prosperous economy and rise from the ashes.
For the success of reforms, first of all, a revolution in the consciousness of the people must be made. People need hope and faith to actively participate in reforms; they need strong positive emotions. They must be confident that reforms open favorable and equal conditions for a system of personal incentives, on which they can earn money, achieve success, and improve their lives. People must understand the essence of the reforms being carried out and believe in them. Reforms must become a national cause. Achieving this is the main task of the President, the Jogorku Kenesh, the Government, scholars, journalists, and the entire progressive intelligentsia. To be fair, it should be said that, unfortunately, new economic thinking has not yet firmly taken root among the state authorities themselves, which negatively affects the level of political decision-making.
Without strong executive power, without a qualified, competent, well-tuned apparatus of state administration at the center and in the regions, it is impossible to achieve success in economic reforms. The strength of power lies in its effectiveness and authority among the population.
A strong power is needed, relying on democratic means of governance, not on an authoritarian regime. For Kyrgyzstan, the policy of "reformist dictatorship" is unacceptable. The new Constitution of the Kyrgyz Republic, adopted by the Jogorku Kenesh on May 5, 1993, gives us, Kyrgyzstani people, a unique chance to carry out reforms democratically. The state power must create such democratic conditions in which every citizen can become the creator of their own destiny and fortune.
Increasing the effectiveness of state power requires a review of the structures and functions of economic ministries and departments, strictly subordinating their activities to the new Constitution and the laws of the republic. It is necessary to eliminate all unnecessary, ineffective management structures at all levels.
A significant reduction of the management apparatus at all levels is required. According to our estimates, without harming the business, a reduction of the state apparatus by 15% or 2.5 thousand people can be carried out. A large staff of low-paid civil servants endowed with administrative powers inevitably becomes corrupt, finding in this a means of survival. Corruption among state authorities causes irreparable damage to the country and society. The "virus" of commercialization has also infected many state institutions.
What additional measures can be taken to combat corruption?
Conduct "legal" commercialization of many state institutions by transferring all resources they use, but with the unconditional deprivation of their administrative rights. Let enterprises themselves demand their organizational, consulting, and communication services.
Adopt a Law on Public Service that excludes civil servants from engaging in commercial activities, establishes a system of objective and strict competitive selection of civil servants for all positions in the system of state power, except for elected ones, and provides for their work exclusively on a contractual basis. At the same time, it is necessary to raise the prestige of civil servants, setting their salaries in accordance with sufficient living standards.
Economic reform cannot be successfully implemented without radical legal reform. The development of the legal infrastructure necessary for the functioning of a market economy is perhaps the most important task of reforms at this stage.
Our Jogorku Kenesh has adopted a certain share of "first generation" market legislation, including laws on property, lease, pledge, land and land reform, various forms of enterprises, general principles of denationalization, privatization and entrepreneurship, foreign investments and concessions, taxation, banks and banking activities, cooperation, joint-stock companies, and others, which have received high praise both in our republic and beyond.
However, the dynamism and pace of public life are such that they pose many new tasks requiring legislative solutions. This is required by the changing system of economic relations and, most importantly, the core of these relations—the right of ownership. The laws listed above already require revision or urgent replacement, as in many cases simple amendments to existing legislation are insufficient.
Today, the most pressing issue is the adoption of legislation on judicial reform, state support and protection of private entrepreneurship, competition, insurance, currency regulation, water resources, land tax, labor relations, contract law, international private law, and much more.
It is important to note that legislation must be one or two steps ahead of reforms in the political, economic, and social spheres to avoid the spontaneity of reforms.
Unfortunately, we currently do not have a unified strategy for legislation, nor has a unified legal policy been formed. In this matter, the coordination of actions between the Jogorku Kenesh and the Government is extremely necessary. It is urgent to develop a legal reform program for the coming years in accordance with the economic reform program.
For the Jogorku Kenesh, embodying legislative power in the Kyrgyz Republic, the issue of legal support for reforms is the main focus of its activities. The Jogorku Kenesh must be a constructive opponent and partner of the executive power, not an alternative power. Unfortunately, recently the Jogorku Kenesh has increasingly turned into an arena of political struggle, pushing legislative activity to the background.
How can we not recall with kind words the fruitful activity of the Jogorku Kenesh in 1991-1992, when it adopted many reformist laws that served as fertile ground for the first sprouts of a market economy and democracy in the Kyrgyz Republic.
Social orientation of the economy
Improving the standard of living, education, and culture of the people, respecting human dignity, ensuring the protection of their rights and freedoms—these are the universal values that we must implement in practice.
Particular concern in this regard is caused by the continuing decline in the standard of living of the population, triggered by the crisis in the economy.
The impoverishment of many social groups becomes one of the main factors undermining their trust not only in state power, the Government, but also in the course of democratic reforms in general.
More than half of the population today lives below the poverty line. Therefore, the state must provide social guarantees in a targeted manner, only to the most vulnerable segments of society—pensioners, disabled individuals, low-income large families, and students. The issue of increasing social differentiation should be particularly emphasized. We cannot allow the unlimited enrichment of some and the extreme impoverishment of others, turning our society into a bipolar social system. We need to strive not only for a free society but also for a just one, making it better for those who are less fortunate. The latter should also be guaranteed certain social support.
In short, creating an effective and functioning system of targeted social protection for the population is one of the highest priorities of the Government.
A growing direct and hidden unemployment poses a particular danger. The overall number of unemployed in the national economy reaches 275 thousand people. According to estimates from the Main Directorate of Employment, the number of unemployed in the republic currently stands at about 140 thousand people, nearly 110 thousand of whom have been released due to production cuts. The situation for women in the labor market has particularly worsened: 7 out of 10 unemployed are women. Therefore, the issues of creating jobs for women should be at the center of attention for the Government, the Ministry of Labor and Social Protection, local administration heads, and leaders at all levels.
The Government needs to pursue an active labor market policy aimed at ensuring the training of qualified labor required in the national economy on the one hand, and facilitating their employment by creating new jobs, organizing public works, and exporting labor on the other. Organizing public works in rural areas will be of great importance. These could include reclamation works, road construction, schools, hospitals, tree planting, etc. Such initiatives from local administrations, together with employment services, will help alleviate social tension during the transition period.
What should our social policy be?
The development of the social sphere is determined by the state of the economy. Real social policy is impossible without considering economic development. Adopting populist decisions in this area is unacceptable.
At the same time, it should not be forgotten that the tasks of raising the educational level of the people, supporting and effectively utilizing scientific potential, developing national culture and art, and maintaining the healthcare system at an adequate level—these are all crucial tasks that require constant attention from state authorities.
Insufficient funding for healthcare, education, science, and culture, low wages that do not correspond to the social significance and level of responsibility of workers in these sectors generate dissatisfaction with their professions, causing the outflow of the most qualified personnel to various commercial structures.
To support teachers, doctors, cultural and artistic workers, pensioners, and students, it is necessary to create a special international aid fund. It is also extremely important to prevent the destruction of the social infrastructure of educational, scientific, healthcare, and cultural institutions (sanatoriums, preventive treatment facilities, sports and health bases, children's camps, etc.), which is within the power of the Government and local administrations.