27.11.2009 - Artículo
Divergent Impacts and imperiled social Gains

Financial Crisis in Central Asia

How has Central Asia fared in the aftermath of the financial crisis? The shock has left contrasting marks on the Central Asian Republics of Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan.

It was in the second half of 2008 that the effects of the economic crisis began to make themselves felt in Central Asia as the possibilities offered to emigrant workers began to plunge and commercial activity and investment flows registered a decline. The major fall out, however, was only to be experienced in the first quarter of 2009. How the situation evolves from now on depends on the attitude which will be adopted by China, Russia, the United States, and other countries to provide their financial support in return for their say in the control of Central Asia’s natural wealth, primarily its water and energy resources.

Kazakhstan emerges unscathed
The GDP was expected to decline by 3% in function with the price of the barrel of petroleum valued at USD 75. Demand on the part of industry not dependent on petroleum, virtually collapsed. Unemployment was expected to double, i.e., from 7% to 13%. The present crisis in Kazakhstan has been primarily fueled by the excessive growth of banking credit financed from abroad, along with a disproportionate concentration of money flowing in from non-commercial sectors. But the Kazaks have some aces up their sleeves: an enormous capacity to learn and to implement judicious policies; USD 22 billion from the petroleum industry that they are utilizing prudently; and the desire of the government to maintain fiscal stability.

Kyrgyzstan relatively well protected
Between 2008 and 2009, the growth of the GDP receded by 1.4%. The production of clothing sank by 40%. The energy sector underwent a strong collapse and is particularly suffering from mismanagement, net financial losses, and insufficient investment. At the same time, significant headway has been made in reducing foreign debt. Moreover, the country has made considerable progress in the fight against corruption. The Kyrgyz economy remains relatively well protected from the effects of the crisis due to the extent and the flexibility of its shadow economy, the quality of its migrant workers, and the aptitude of its government in conserving the international support destined for its budget.

Tajikistan but a breath away from red alert
Tajikistan has suffered a more serious energy crisis than has its Kyrgyz neighbor, and the 2008 drought caused a dramatic decline in agricultural production. However, the Tajik economy continues to remain in a critically vulnerable position due to its exaggeratedly strong dependence on remittances. These remittances, alone representing nearly half of the country’s GDP, have fallen by 30% and still continue to decline. Meanwhile, the two principal sectors of Tajik export, i.e., aluminum and cotton – severely hit by the crisis given their predominant concentration within the economy – are experiencing difficulties due to low demand. These problems are compounded by the limited international support being accorded to the governmental budget. The only positive point to note is that the overabundance of cotton has forced the peasants to diversify and to raise other crops that are more interesting for the global market. Meanwhile, last winter’s energy crisis is threatening to repeat itself, and with but a single moth of imported fuel in stock, the government will not have the funds needed to pay for energy delivered by neighboring Uzbekistan and Turkmenistan. The concerted support of the donor community is necessary for the State to avoid excessive enfeeblement.

Uzbekistan enjoys sizeable investments and stimulates employment
GDP grew by 8% in 2007 and by 9% in 2008, while an annual growth of 7% was predicted based of the first quarter of de 2009. Revenue from the export of cotton and gas have been declining, as have the remittances sent by migrant workers albeit to a lesser degree and representing in any event but a small portion of budget revenues. As opposed to these tendencies, the potential investments from China, Korea, and Japan, along with the export of gold and gas, are expected to remain high. To a certain degree, the Uzbek economy is protected from the crisis by virtue of its isolation and the control exercised by its central government. The impact of the crisis that is felt the strongest stems from the reduction in employment possibilities enjoyed by migrant workers. This, in turn, has motivated the Uzbek government to initiate measures to create jobs and not only to attract foreign capital. Large-scale investments have been undertaken in the domains of roads and energy.

Turkmenistan’s rosy future
Turkmenistan is the Central Asian country the least affected by the crisis. The country has received a juicy order for the construction of a natural-gas pipeline.

Social gains imperiled
During the period 2007-2008, poverty in Central Asia receded and a net improvement was recorded in the quality of life. The probability of this progress being called into question is to be taken seriously, particularly in Tajikistan and to a lesser degree in Kyrgyzstan and in Uzbekistan where substantial efforts have been deployed in an attempt to conserve the social benefits chalked up.

It should be pointed out that as opposed to other regions in the developing world, the financial contribution made by donors represents but a modest contribution to the financing of these countries. In view of the fact that the social gains accumulated over the past ten years risk being reduced to nil because of the crisis, cooperation has become more important than ever if Central Asia is to remain stable and pursue its course of development.