Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
KYRGYZSTAN
FY 1998 Assistance to the NIS Request . . . . . . . . . . . . . . . . . $36,500,000 Introduction
Kyrgyzstan was one of the earliest and most active reformers among the former Soviet Union. United States strategic interests in Kyrgyzstan are twofold. First, there is an interest to work with reformers in Kyrgyzstan to build and sustain a democratic and market-oriented country that could serve as an example to neighboring countries which seem less committed to these values. Second, a stable, independent Kyrgyzstan interacting positively on a wider international stage is important to maintaining stability in an area of the world where a number of international players, including Russia, China, Iran, the Middle East and the Indian Subcontinent, have displayed strategic interests of their own.Kyrgyzstan remains the most open of the five countries of Central Asia in both economic and political terms. On the economic front, the transition, though difficult, has included some of the most far-reaching reforms in the former Soviet Union. Kyrgyzstan is well on the road to macroeconomic stabilization. After three years of sharply declining production, the Kyrgyz economy showed the first signs of recovery in 1995. GDP growth was estimated at one percent in 1995 and preliminary data points to a growth rate of 5% in 1996. Despite occasional setbacks, Kyrgyzstan is also the most democratic country in Central Asia. The press is relatively free and an active parliament helps ensure that key issues are discussed and brought before a wide audience before they are acted upon. Despite these positive developments, the most recent UNDP Human Development Plan for Kyrgyzstan underscores the difficulties faced by many Kyrgyz citizens in coping with the transition.
The Development Challenge
Kyrgyzstan is a small country of 4.6 million people living in an area about the size of Nebraska. Despite considerable out-migration over the past several years, the country remains ethnically diverse. Ethnic Kyrgyz represent the majority population, but there are sizable communities of Russians, Uzbeks, Germans, Tatars, Uigers, and others. Only about seven percent of its 200,000 square kilometers is arable, with cotton, wheat, vegetables and other crops irrigated by the rivers flowing from the high mountain ranges. There are significant hydro and mineral resources which enhance the country's prospects for long-term economic success. However, Kyrgyzstan's geographic isolation, combined with the substantial investment costs in exploiting these resources makes short-term economic prospects more problematic.Kyrgyzstan's major achievement since independence in 1991 has been to establish the basic framework for a market economy and to maintain a commendable degree of macroeconomic stability. In 1993 it became the first country in Central Asia to introduce its own currency. Since then, the Kyrgyz som has been relatively stable, maintaining its value well against the dollar and other freely tradable international currencies. Monthly inflation rates have been brought to within the low single digits and overall fiscal management has been among reasonably good. Foreign investment is strongly encouraged and the country's privatization is regarded as among the most ambitious of the former Soviet republics. Kyrgyzstan is classified as a lesser indebted lower income country by the World Bank.
Despite overall macroeconomic stability, the standard of living has fallen and the social costs have been high. The elimination of subsidies from Moscow, the disruption of existing trading systems, and the departure of many skilled technical and professional workers have exacerbated the economic dislocation. The industrial sector that Kyrgyzstan inherited was among the least efficient in the former Soviet Union. It included unproductive defense-related plants and other industrial establishments that simply cannot compete in the international marketplace. The economy is divided roughly equally among the agriculture, industry, and service sectors. According to official statistics, agriculturalperformance was quite strong in 1996 and overall agricultural as well as industrial output appears to be rising. Trade patterns continue to be dominated by countries in the former Soviet Union, which still account for well over half of both imports and exports.
USAID-funded advisory groups have played an important role, both in the privatization process and in the overall economic restructuring effort. The mass privatization program is now complete. Central Asia's second stock exchange has been established in Bishkek and, despite a modest start, is positioning itself to play an important role in promoting the kind of capital market development needed to ensure that scarce financial resources are directed toward areas of highest economic return. A comprehensive tax code was passed in mid-1996, characterized by the basic principles of fairness, administrative simplicity and economic neutrality. Kyrgyzstan is the second NIS country (the other being Kazakstan) to have a comprehensive western-style tax code in place.
As the private sector begins to play an increasing role in the economy, more attention is being devoted to ensuring that appropriate legal and administrative structures are in place that promote private sector growth. Recent approval for an independent regulatory agency for energy and the planned breakup and privatization of the parastatal which previously exercised monopoly control over the same sector are important examples of the type of changes need to improve efficiencies and attract foreign investment. Also, a new law on economic enterprises was adopted in November 1996 and a new law on enterprise registration was adopted in September 1996, both of which should improve the business climate. Further changes in the policy and administrative environment are needed to consolidate and maintain Kyrgyzstan's reputation as a country which is committed to market reform, encourages entrepreneurial talent and is hospitable to private investment.
Although funding mechanisms and approaches may change, USAID will likely be working with development partners in Kyrgyzstan well into the next century. Kyrgyzstan's relative poverty, combined with its willingness to embrace reform, make it a strong candidate for continuing to receive FREEDOM Support Act (FSA) assistance.
Other Donors
Kyrgyzstan's relative openness to economic reform has attracted a large number of foreign donors. Kyrgyzstan counterparts have demonstrated a commendable interest in ensuring that donor efforts are properly coordinated and that aid resources are stretched as far as possible. Kyrgyzstan continues to work successfully with the IMF under a three-year Extended Structural Adjustment Facility (ESAF). The Japanese and several European donors are active, including Germany (in agriculture, education, health and small enterprise development) and Switzerland (in agriculture and social services). The European Community has a wide-ranging technical assistance effort covering a number of areas, including communications, education, energy, environment and privatization. UN agencies such as UNDP have more modest programs.Multilateral banks such as the Asian Development (ADB), World Bank, and European Bank for Reconstruction and Development (EBRD) are expanding their loan portfolios. In some instances such as health reform, activities are based in part on work undertaken by USAID-funded technical assistance teams that have been on the ground for some time. The World Bank's IDA program continues to focus on providing policy advice and technical assistance, balance of payments support and investment finance. As USAID's own resources decline, renewed efforts are being made to ensure greater coordination and, where possible, dialogue with other donors on using USAID's own past experience to extend pilot programs to a national level.
FY 1998 Program
USAID's strategy in Kyrgyzstan emphasizes both economic and political reform, reflecting the belief that both issues must be addressed in order to build and sustain democracy and a market-based economy. The largest share of technical assistance resources are devoted to the economic transition, though the composition of the program is changing. The Partnership for Freedom's new programs to encourage economic growth and develop links between Kyrgyzstanis and Americans will also begin in FY 1998.The planned FY1998 program anticipates a continued evolution of USAID activity in the area of economic restructuring. In the past few years, the economic restructuring program has gradually moved through a three-stage progression: (1) primary focus on short-term economic stabilization measures designed to help bring government spending and inflation under control; (2) support for privatization of small- and medium-sized enterprises; and (3) establishment of financial markets and development of an appropriate legal infrastructure for commercial activities. The first two stages of this process will be completed during FY1997. In FY1998, it is envisaged that USAID will deepen its support to the third stage, in part by strengthening the now nascent financial sector through direct support to financial market institutions. Efforts will also continue in terms of further developing the legal and commercial infrastructure and further rationalizing Kyrgyzstan's system of intergovernmental finance.
Democratization programs will increasingly focus on developing the basic foundations for a civil society, strengthening parliament, promoting independent means of communication, and building indigenous non-government organizations (NGOs). Work in the area of effective, responsible and accountable local government is also envisaged. Social sector programs are closely tied to broader economic restructuring objectives, for example demonstrating the importance of health and housing reform in bringing about more sustainable approaches to health care and urban living conditions.
Strategic Goal: Economic Transition
Kyrgyzstan's future hinges in large part on completing its program of economic restructuring. Considerable progress has been made, particularly lowering inflation rates, maintaining currency stability, and establishing an overall level of macroeconomic stability that sets Kyrgyzstan apart from most of the other NIS countries. The country's privatization program is winding down. As this phase of the economic transition moves to completion, the emphasis is shifting toward ensuring a legal and regulatory environment that promotes private sector growth. Trade, investment, bankruptcy laws, financial sector development and land registration are all being emphasized.Considerable progress has been made on the fiscal front. However, further work is needed to ensure that the macroeconomic progress achieved thus far is maintained. Many of the early successes are attributable to very tight short-term fiscal management policies, including a drastic reduction in subsidies for both failed enterprises and the social sector. While budgetary controls have been tight, revenue generation reforms have lagged behind. The introduction of the new tax code in August 1996 should help, resulting in a more rational and transparent approach to tax collections. This in turn needs to be followed by improvements in tax administration, including greater use of computers and the introduction of a taxpayer information system. At this point, implementation of the new tax code through more efficient tax administration is now the primary focus of USAID technical assistance in the tax reform area. Reforms in the revenue generation and budget allocation process among the various levels of government (national, oblast, local) are also needed.
The legal and regulatory environment is emerging as a key issue within Kyrgyzstan's reform program. Private economic actors must know the "rules of the game" beforehand, and investors must have assurance that their projects are protected by law. Some elements of a policy, legal and regulatory framework that support competition and private sector growth are already in place. Important work is now underway to train the judiciary and local attorneys about contract enforcement needs, with a view toward ensuring transparency, minimizing corruption, protecting the rights of entrepreneurs, and reducing arbitrary and unnecessary licenses and other bureaucratic red tape. Strengthening the independence of the judiciary is also important.
A legal and regulatory reform initiative began in November 1995. The emphasis is on clarifying and strengthening property ownership and the transfer of commercial transaction rights. Without such measures, newly privatized industries will flounder and new entrepreneurs are unlikely to enter the marketplace. Given Kyrgyzstan's isolation and lack of easily exploitable natural resources, its legal and regulatory environment will go a long way to determining prospects for future economic growth. USAID-funded advisors are also helping to support Kyrgyzstan's application to join the World Trade Organization (WTO). Kyrgyzstan's WTO application documents have been praised as a model for those of other NIS countries, and the application process itself provides an important impetus for engaging with Kyrgyzstan on a wide range of trade and investment issues.
USAID has already provided crucial support in several areas of legal and regulatory reform as well as in setting up a corporate governance framework for privatized enterprises. Land registration is the focus of a municipal development and management initiative being supported in conjunction with the World Bank. This pilot land registration effort is vital to help create a genuine real estate market, and to stimulate the secured transactions which are so vital to developing a viable banking system and capital market. With regard to energy, USAID advice on a draft energy law led to important modifications that called for an independent electrical utility regulatory agency and more private sector involvement, both of which are preconditions for proposed World Bank and Asian Development Bank electricity sector loans.
Systems need to be introduced to channel scarce capital into the areas of highest economic return. USAID provided policy advice, transmission of technical skills and training are all important parts of this effort to help develop the main institutions and features of an effective financial market, including the Kyrgyz Stock Exchange (KSE), National Securities Commission (NSC), private investment funds and private broker and dealer groups.
The KSE, which opened its doors and began trading in May 1995, represents an early success. Also, an Investment Funds Association was established in October 1995. Specifications for the clearing and settlement of transactions were established when the commercial bank "Maskat" was designated the clearing bank for KSE operations. A USAID-funded Treasury advisor is working on government securities and dealing with debt issues. In addition, the Central Asian American Enterprise Fund represents a vehicle for bringing badly needed capital to the emerging private sector in Kyrgyzstan.
Future goals including promoting a self-sufficient securities exchange with at least 30 companies trading on the main board; assistance for a variety of automated accounting, settlement and depository systems; assistance to the NSC to enforce securities law and regulations and to train staffers about regulations and various operations; and completion of a broker/dealer compliance manual. In time, the emergence of efficient capital markets should help attract foreign investment into the Kyrgyz economy.
Further work is needed to operationalize the independent regulatory agency for electricity; and to complete the unbundling and privatization of the Kyrgyz State Energy Holding Company (KSEHC). Similarly, Kyrgyzstan needs to enter into water sharing and energy trade agreements with neighboring Central Asia republics to sell hydroelectricity and secure winter heating and supplies of natural gas and coal. Such agreements will facilitate water management in the Aral Sea basin.
Strategic Objective: Increased soundness of fiscal policies and fiscal management practices
Strategic Objective: Accelerated development and growth of private enterprises
Strategic Objective: A more competitive and market-responsive private financial sector
Strategic Goal: Democratic Transition
Ensuring that economic reform is accompanied by political reform lies at the heart of the ongoing U.S. Government dialogue with Kyrgyzstan as it moves to build its future. The role of an independent media, respect for human rights, an active non-governmental sector, rule of law, and widespread citizen participation in economic and political decision-making are all prominent features of this effort.Efforts to enhance access to information and help develop the basic features of a civil society in Kyrgyzstan take place on a number of levels. First, USAID is helping to nurture the non-governmental organization (NGO) sector to enhance citizen participation. Second, programs are underway to promote independent media, especially television. Third, assistance is being offered to the newly elected Kyrgyz parliament in order to enhance its effectiveness. Fourth, outreach programs involve judges and lawyers as part of an effort to improve the effectiveness and independence of the judiciary. Finally, efforts are underway to improve the electoral process.
Viable democracies depend on the participation of all citizens, as individuals or as members of interest groups. Virtually no NGOs existed before the breakup of the Soviet Union. Since then, several hundred NGOs have emerged. Many tend to be poorly funded and make a limited contribution to the political, economic and social life of Kyrgyzstan. However, the generally open environment for NGOs provides opportunities that are increasingly being realized. USAID-funded groups work directly with such NGOs, providing both training and small grants to assist in program development.
A free and independent media is also a hallmark of democratic societies. Efforts are under way to improve both the quality of independent television programming and ensure its continued financial viability. TV officials attest to the value of these programs in redesigning studios, improving presentations, maintaining ethical standards, and learning how to manage a private enterprise.
While constitutional changes shift the balance of power to the presidency, the parliament still represents a forum for public debate and can play a constructive role in ensuring that alternative voices are heard. It also continues to control the process for discussing, amending, and passing legislation. USAID-organizations assist by providing forums for public discussion on pending legislation and in helping legislatures strengthen relationships with their constituents. The first public hearing, dealing with the proposed labor code, was conducted in part as a result of USAID assistance.
USAID-funded programs seek to involve the judiciary in the law-making process. USAID focuses on judges, bar development, and legal education. It has provided advice on legal and constitutional issues and on improving the credibility and independence of the judiciary. A charter for a forty-member Association of Attorneys of Kyrgyzstan has been established and a USAID-funded organization is working to strengthen this new association. An association of law students has been formed, and the judges are anxious to form an association of their own. USAID also helped organize a seminar on legislative drafting as well as candid discussions on draft legislation related to civil and criminal codes.
USAID programs have sought to improve the electoral process and, where appropriate, bring weaknesses and inconsistencies to light. Work of this type helps strengthen the professional capacity of the Kyrgyz Central Election Commission (CEC) which is actively working to increase its independence. USAID provided the majority of international observers for the December 1995 presidential elections. This year, USAID is conducting a tracking poll to follow up on its 1995 survey of voter attitudes.
Finally, USAID's existing projects involving housing, land privatization, health, and local government will serve as the base from which USAID will assist the government in its decentralization efforts and help improve the capacity of local authorities to carry out their expanded responsibilities.
Strategic Objective: Increased, better-informed citizens' participation in political and economic decision-making
Strategic Objective:Demonstrate more effective, responsible and accountable local government Strategic Goal: Social Stabilization
Social sector restructuring is closely related to the wider economic restructuring effort. The elimination of subsidies from Moscow shortly after independence underscored the fact that existing approaches were not sustainable. The need for sustainable approaches also provides a powerful impetus for devising new and innovative ways in which the state can facilitate social sector development rather than being solely responsible for funding and managing it.USAID efforts focus on health and housing with the aim of introducing market-based approaches that increase individual choice and rely when possible on the private sector. A recently completed evaluation of the USAID's health reform effort concluded that "there is a strong supporting relationship between the substantive reform of the health care system and the overall success of the transition to market oriented, democratic societies."
USAID's health reform program has supported development and implementation of market-driven private payment schemes in Issyk-kul oblast on a pilot basis. These mechanisms have improved the efficiency of the health delivery system in the oblast. In addition, the program established family group practices, a process based on active local participation that now provides alternative choices for individuals in the region regarding their health car provider.
Similarly, housing programs have sought to combine policy change with practical training geared toward maintaining existing housing stocks. The housing effort also includes formation of a housing policy council and a real estate register. The housing program successfully promoted municipal property auctions, private sector housing construction, and the development of condominium associations.
The Mission plans to take the next step in improving the sustainability of social services by developing technical assistance and training interventions based on the combined lessons learned from demonstrations in local self government and in health and housing. USAID plans to work at both the national and local level. The goal would be to demonstrate that social sector reform can be carried out in a cost-effective manner while improving the quality and availability of services. For example, USAID plans to expand its support for health financing schemes that contribute to long term financial sustainability in two oblasts outside the pilot oblast. The World Bank is planning to use its resources to replicate the Issyk-kul model in two additional oblasts. As a result, by 1999 at least 90 percent of Kyrgyzstan's population should benefit from a restructured and more efficient health care system.
Strategic Objective: Improved sustainability of social benefits and services Cross-cutting and Special Initiative
Special initiatives in medical partnerships, health, infectious disease control, and reproductive health will continue to be shaped to improve the sustainability of the social sector and to support the broader health reform agenda. The medical partnership activities assisted in establishing a Kyrgyzstan nursing association. The Ministry of Health's creation of the new position of "nurse manager" in hospitals with more than 300 beds, a revolutionary step in the former Soviet Union, is directly attributable to training and technical assistance provided as a result of the medical partnership. Both achievements help support the overall health reform program.Training and technical assistance through a PASA with the Centers for Control and Prevention (CDC) in Atlanta have helped to develop institutional capacity in the Ministry of Health to monitor the incidence of various diseases. A new management information system for immunization was also introduced.
Using FY 1996 and 1997 reproductive health earmark funds, USAID has undertaken to support the Kyrgyzstan Demographic and Health Survey (DHS) in 1997. This is the third DHS survey in the former Soviet Union, the first two having been conducted in Kazakstan and Uzbekistan. It is expected to provide reliable health status data leading to more informed policy formulation and program interventions. The reproductive health effort has resulted in two fully equipped service delivery/clinical training sites in reproductive health in Bishkek. The contraceptive social marketing program has trained over 200 pharmacists in modern pharmacy management practices and in modern contraceptive technology. This program has also worked to enhance the skills of both government and private individuals working in the contraceptive social marketing initiative, popularly known as the "red apple" program.
Economic and democratic reform cannot take place without a cadre of individuals from both the public and private sectors who have an understanding of markets and democratic processes. The NIS Exchanges and Training program in Central Asia has been developed to supply the human resources necessary to assure this orderly transition. The program was designed to support USAID's technical assistance programs in economic, democratic and social sector reform and to develop cadres of officials willing and able to bring about necessary change.
USAID has provided U.S. short-term training for 420 officials between 1994 and 1996, and approximately 90 more participants are anticipated under a follow-on training program for 1997. USAID-funded participants have been instrumental in the fiscal reform, central banking operations, commercial law, accounting standards, housing sector reform, health reform, and NGO development. This effort benefits the Kyrgyz at all levels by training qualified public officials who are able to establish laws and regulations that are transparent and foster the growth of markets and democratic government. Potential entrepreneurs will benefit as they establish links with potential future U.S. commercial partners.
Training programs support both U.S. short-term training as well as in-country follow-on programs. The in-country program includes establishment of a Resource Center in Bishkek where returning participants can utilize e-mail and fax facilities to keep in touch with U.S. trainers and contacts, as well as duplicating equipment to reproduce reports and other materials. Future efforts will emphasize in-country and third-country training approaches.
The Special Initiatives category also includes U.S. agency activities that do not directly support USAID's strategic objectives.
KYRGYZSTAN
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform 1,500,000 -- -- -- 1,500,000 Private Enterprise 14,500,000 -- -- -- 14,500,000 Financial Reform 3,000,000 -- -- -- 3,000,000 Energy -- -- -- -- -- Citizens' Participation -- 4,000,000 -- -- 4,000,000 Legal Systems -- -- -- -- -- Local Government -- 2,000,000 -- -- 2,000,000 Crises -- -- -- -- -- Social Benefits -- -- 3,000,000 -- 3,000,000 Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 8,500,000 8,500,000 TOTAL 19,000,000 6,000,000 3,000,000 8,500,000 36,500,000 *FREEDOM Support Act (FSA) Funds
USAID Mission Director: Patricia K. Buckles
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: Fiscal Reform, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION: FY 1998: $1,500,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Increased soundness of fiscal policies and fiscal management practices.
Background: Prior to independence, Kyrgyzstan had almost no experience in formulating its own fiscal policy and administering rational and efficient tax collection and budgeting practices. Complicated budget procedures lacked transparency and little was known about modern approaches to tax collection and revenue generation. Given this backdrop, Kyrgyzstan has been successful in implementing a tight fiscal policy which contributes to economic stability. Subsidies on both the production and consumption side have been drastically reduced. Similarly, inflation is now negligible, reflecting a performance with few parallels anywhere else in the former Soviet Union. Finally, exchange rate management has been extremely effective. Over the past two years, the Kyrgyz som has been among the most stable currency in the NIS, though a major devaluation appears to be taking place in the face of a large trade imbalance.
USAID Role and Achievements to Date: Officials at the Ministry of Finance have benefitted from USAID-funded analysis and policy advice, particularly in the fiscal area. As noted, results include dramatically reduced inflation, currency stability and a macroeconomic environment that is among the most stable in the former Soviet Union. USAID-funded advisors also had the lead role in formulating the new tax which was introduced on August 1, 1996. Current technical assistance focuses mainly on implementation of the new tax code.
Description: In FY1998, USAID technical assistance in the fiscal area will concentrate mainly on further rationalization of Kyrgyzstan's system of intergovernmental finance, with a view toward ensuring that various levels of government operate with greater economic efficiency in implementing their taxation and expenditure authority.
Host Country and Other Donors: Ongoing efforts in the fiscal arena are coordinated with those of other donors, including the World Bank and EU-TACIS.
Beneficiaries: This effort seeks to benefit tax-paying citizens of Kyrgyzstan at all levels by ensuring greater transparency and a more rational revenue collection and budgetary expenditure process. Potential entrepreneurs will benefit as more comprehensible and transparent tax systems are adopted. More efficient revenue collection and more rational budgetary procedures should also help strengthen the credibility of the government and help ensure the sustainability of targeted social programs aimed at the most vulnerable sections of society.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through a U.S. commercial contractor as well as through the U.S. Department of Treasury.
Major Results Indicators: Baseline Target Govt. deficit as % of GDP 12.5% (1995) 3.7% (1997) (accrued basis less revenues as percentage of GDP) GOK maintains compliance with Yes (1995) Yes (1997) IFI conditionsTax revenues as % of GDP 13.6% (1995) 15.5% (1997)
Adoption of modern tax legislation No (1995) Yes (1997)
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: Private Enterprise, 110-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $14,500,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Improved, more sustainable private business operations.
Background: Given relative success in stabilizing the macroeconomic environment and placing government-owned assets under private control, Kyrgyzstan's future growth now depends on its ability to stimulate and promote a new and emerging indigenous private sector. The fact that Kyrgyzstan lacks easily exploitable natural resources and the fact that it inherited one of the least efficient industrial sectors in the former Soviet Union complicates matters. Nonetheless, there was widespread citizen participation in the mass privatization program and approximately 70 percent of the industrial labor force is expected shortly to be working for private firms.
USAID Role and Achievements to Date: USAID is providing crucial support for promoting legal and regulatory reforms that call for broad-based privatization process, the breakup of regional transport and wholesale monopolies, effective banking and securities market regulatory guidelines, and improvements in the corporate governance framework of privatized firms. Work in privatization has been especially key, ensuring among other things that the percentage of investment coupons invested in private enterprise increased from 10 % in December 1994 to 90% in July 1995. By mid-1996, most of the 900 targeted medium- and large-scale firms had gone through the coupon auction process.
To stimulate private foreign investment in energy, an independent regulatory agency for energy has been established. Monopoly control over the energy sector by a parastatal has been removed. Plans are being made to break the same parastatal and to privatize major components of the energy sector. As the proportion of the economy managed by the private sector expands, new emphasis is being given to the legal and regulatory environment in which private entrepreneurs must operate. Trade and investment, bankruptcy, and general business law receive special attention. The Central Asian American Enterprise Fund (CAAEF) represents another vehicle for bringing badly needed capital to the emerging private sector and recently started operations in Kyrgyzstan.
Description: In FY1998, support for private enterprise reform will focus mainly on further commercial law development and related areas such as support for accounting reform at the enterprise level. Among other things, the support activities will assist Kyrgyzstan in developing a financial sector that is more open and transparent and therefore less susceptible to corrupt practices.
Host Country and Other Donors: Ongoing efforts to strengthen private business operations are developed in close conjunction with those of other donors, especially the World Bank, EBRD, and EU-TACIS.
Beneficiaries: Specific beneficiaries include the hundreds of thousands of citizens of Kyrgyzstan who own shares in newly privatized government enterprises and stand to gain if these new firms increase in value or pay out dividends. Aspiring entrepreneurs stand to benefit from a more comprehensible and more transparent legal environment. The entire population stands to gain from a market-based economic system which creates employment, increases incomes, lower prices, and expands individual choice.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through several private U.S. firms as well as U.S. private voluntary organizations such IESC, FINCA and Volunteers in Overseas Cooperative Assistance (VOCA). As noted, the CAAEF is an important player because of its role inmaking scarce investment and equity capital available to Kyrgyzstan's emerging private sector.
Major Results Indicators: Baseline TargetNumber of economic sectors 0 (1995) 9 (1998) showing increase in private market share
Number of new laws and policies 0 (1995) 25 (1998) drafted with USAID assistance
GOK maintains adherence to IFI Yes (1995) Yes (1998) conditionality
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: Financial Reform, 110-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $3,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: A competitive private financial sector more responsive to a market-oriented economy.
Background: Early success in the privatization arena will be unsustainable unless it is followed by the establishment and growth of a vibrant capital market to channel scarce investment resources into areas of highest economic return. Most commercial banks are barely solvent, and there is only the most rudimentary understanding of how capital markets work. Although Kyrgyzstan adopted basic central and commercial banking laws in December 1992, continued assistance is needed to modernize these laws and ensure effective implementation. A strong, independent Central Bank with an effective banking supervisory capacity is needed to modernize the banking system. The basic framework for an effective securities market also needs to be implemented and set on a sustainable footing.
USAID Role and Achievements to Date: The formation of a National Securities Commission represents one important achievement, the establishment of Kyrgyzstan's first stock exchange in Bishkek in 1995 another. More than twenty companies are now listed on the stock exchange board. New corporate accounting standards have been introduced. Significant strides have also been made as part of USAID's effort to tighten financial regulatory guidelines and enhance monitoring capacity in the banking sector. A number of insolvent banks have had their licenses suspended as a result of this work. These actions, and a dramatic reduction in credits and an overall tight monetary policy over the last two years, reflect the success of the Central Bank in asserting its independence.
Description: USAID's main role is to provide technical assistance and training to nascent institutions in the financial sector. Much of the early work--drafting and introducing new laws, procedures and operating systems--has already been done. Now, hands-on work and on-the-job training is receiving special emphasis. In FY1998, USAID will continue to provide assistance to the financial sector in these and related areas.
Host Country and Other Donors: USAID is the major foreign donor working in the financial sector, and the only one involved in the securities area. Work is coordinated closely with the World Bank as well as with other donors such as EU-TACIS.
Beneficiaries: Immediate beneficiaries include professionals involved in securities market development such as private bankers, stock brokers, and government officials. Newly emerging entrepreneurs as well as a broad range of Kyrgyz citizens should benefit by expanding capital markets which channel scarce financial resources in more productive directions.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through three private U.S. firms in cooperation with the local counterparts at the Central Bank, Ministry of Finance, the Bishkek Stock Exchange, and National Securities Commission.
Major Results Indicators: Baseline TargetBanks deposits as % of GDP 5.0% (1995) 7.0% (1998) No. of financial services available 5 (1995) 24 (1998)
% of banks meeting capital 42% (1995) 80% (1998) adequacy requirements
% of firms using new accounting 0 (1995) 50% (1998) standards
Types of financial institutions 3 (1995) 7 (1998)
Types of security markets 4 (1995) 8 (1998) institutions
No. of companies listed on stock 10 (1995) 50 (1998) exchange
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: Citizens' Participation, 110-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $4,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Increased citizens' participation in political and economic decision-making.
Background: Despite occasional setbacks along the way, Kyrgyzstan remains the most open Central Asian country. In particular, there have been many recent examples of steps to expand information flows and promote greater transparency in the government decision-making process. For example, with USAID support a Consultative Council on Legal Reform provides a new mechanism for the executive, parliament, donors, NGOs and private citizens to gain access to information and participate in planning and discussing the ongoing reform program.
USAID Role and Achievements to Date: Active support of local non-governmental organizations (NGOs) remains a central part of the USAID program in Kyrgyzstan. By one estimate, some 420 NGOs were active in a variety of areas, including environment, human rights, agricultural development, women's rights, media, civic education, and election law reform. This number represents an increase of 157 NGOs over the previous year. Civic education programs are being developed, based partly on the results of a USAID-funded survey tracking voter opinions and attitudes. USAID grantees have also been influential in establishing a voluntary lawyer's union for Kyrgyzstan, encouraging the development of local bar associations, providing comments on draft legislation, and promoting public discussion on pending legislation.
Description: USAID-funded NGO activities largely involve technical assistance, training, and grants to local NGOs. The local NGO sector receives special attention, in terms of the legal and regulatory environment, in terms of introducing greater professionalism and new management skills to NGOs, and in terms of effecting social change and providing needed social services. Under a competitive small grants programs, a number of local organizations are eligible to receive direct programming support. A new initiative will provide training to private television stations to improve programming quality and enhance their financial viability.
Host Country and Other Donors: The United States is the major foreign donor working in the area of democratization in Kyrgyzstan. Programs supported by the various U.S. Government agencies, including those of USAID and USIA, are closely coordinated.
Beneficiaries: Beneficiaries include members of Kyrgyzstan's NGOs, independent television stations, lawyers, members of the judiciary, members of parliament and the public at large.
Principal Contractors, Grantees, or Agencies: Several USAID-funded American NGOs such as the American Bar Association/CEELI, National Democratic Institute (NDI), Internews, and the International Foundation for Election Systems (IFES) have played important roles in promoting democracy in Kyrgyzstan. Familiar American groups such as Goodwill Industries, Aid to Artisans, and the Citizens Network for Foreign Affairs, which together form The Counterpart Consortium, also participate in local NGO development.
Major Results Indicators: Baseline Target No. of Advocacy NGOs 0 (1992) 400 (1999) No. of draft laws and policies 0 (1992) 16 (1999) with NGO inputNo. of independent stations 0 (1994) 7 (1999)
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: More effective, responsible, and accountable local government 110-S002.3
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $2,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1998 ESTIMATED COMPLETION DATE: FY 2001
Purpose: Demonstrate more effective, responsible, and accountable local government
Background: Kyrgyzstan, with limited arable land and a lack of readily accessible natural resources, has embraced the ideals of market reform as its only path forward. However, economic hardship continues and economic difficulties affecting large numbers of the population threatens the economic transition process as a whole. One approach toward dealing with these problems is decentralization, providing local authorities with greater responsibility for both raising revenue and determining how that revenue is spent.
At this point, Kyrgyzstan is far ahead of its neighbors in terms of delegating decision-making authority to local authorities. The range of legislation related to this area over just the past year is impressive. For example, progressive changes in the tax law allows designation of certain taxes to different levels of government. The October 1996 Presidential decree encourages formation of municipal associations as well as the development of municipal charters as the primary documents of local government.
USAID training and technical assistance have helped to demonstrate the benefits associated with effective, responsible, and accountable local government in one pilot test site. Using this model, USAID demonstrated how activity in health and housing can usefully be carried out at a local level for maximum effectiveness. Similarly, USAID's activity in intergovernmental finance supports the critical element of creating a resource base for social sector reform. The time is opportune in Kyrgyzstan to address the generic issues relative to financing and administration of social benefits and services in addition to the more sector specific issues covered under Strategic Objective 3.2 (Improved sustainability of social services and benefits).
USAID Role and Achievements to Date: USAID implemented the Municipal Finance and Management (MFM) Project in Central Asia as part of the Democratic Pluralism Initiatives (DPI) program from 1994 through 1996. Karakol, Kyrgyzstan was chosen as one of two municipalities in Central Asia (the other being Atyrau, Kazakstan) in which to implement the project. An external evaluation, marking the completion of the project, was conducted in October 1996, with a view toward providing further information about possible future directions. The evaluation concluded that significant strides towards democracy building were made, especially in view of the short life cycle of the project. Key events highlighted included preparation and use of a city budget; a significant increase in the percent of taxes received and retained in Karakol; the introduction and use of computer systems and software in the tax and finance departments; and the preparation of a draft city charter for Karakol that is now under consideration. The establishment of an information office and increased media exposure also increases transparency and makes local citizens more aware of developments related to local government. In addition, USAID is now implementing a pilot land registration process for use by municipalities. This project, which will be expanded with World Bank resources, is critical for ensuring that local governments have the revenue base needed to effectively carry out their responsibilities. In addition, this project will support USAID-assisted efforts at providing privatization of land at the local level through land auctions and encouragement of private sector real estate development.
Description: USAID believes the time is appropriate to expand the initiative begun in Karakol to other oblasts and municipalities in Kyrgyzstan. The inability of the central government to meet subsidy requirements at the local level is motivating policy makers to devolve key financial and other authorities to the local level. USAID would build on lessons learned from the MFM and housing reform projectsand from other donors to ensure efficiency and effectiveness. USAID funded training and technical assistance would be directed to the national as well as selected local levels to facilitate decentralization reforms.
The October 24, 1996 decree by the President of Kyrgyzstan "On the Measures for On-Going Improvement of Local Self-Governments in the Kyrgyz Republic" sets the stage for continued assistance. As one recent EU-TACIS activity concluded, there are very few additional resources available to local governments in the near term--and the only hope for providing municipal services is through increased efficiency. In keeping with this view, USAID plans to support administrative development at the local government level. Activities will be closely coordinated with ongoing assistance in the development of local resource bases to guarantee a degree of fiscal independence to local government, in the development of indigenous nongovernmental organizations, and in the development of sustainable social services.
Host Country and Other Donors: USAID will work closely with the various governmental entities involved in local government issues, including ministries, the presidential apparat, parliament, local level officials and government employees. A number of other donors also support activities with a local government dimension, including the World Bank, Asian Development Bank, and EU-TACIS.
Beneficiaries: Elected officials and government employees at the oblast and municipal level will benefit directly. Also, private citizens of Kyrgyzstan, especially those classified as part of the "vulnerable group" (i.e., elderly pensioners, women, and children) will benefit from improvements in the social safety net and more targeted and effective social services.
Principle Contractors, Grantees, or Agencies: To be determined. Mission plans to "buy in" to existing assistance mechanisms or to competitively procure services depending on which will provide the best benefit to the U.S. Government, cost and other factors considered.
Major Results Indicators:*
*This is a new strategic objective, indicators and targets will be finalized during the next planning period.
ACTIVITY DATA SHEET
PROGRAM: KYRGYZSTAN
TITLE: Improve the sustainability of social benefits and services 110-3003.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $3,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2001
Purpose: Improved sustainability of social benefits and services.
Background: The social sector in Kyrgyzstan, which was previously funded and managed entirely by the government, continues to be severely strained as the country moves from a planned economy to a market oriented one. A key determinant of the overall success and sustainability of the reforms will be the ability of the government and the private sector to develop and administer efficient and cost-effective social services. Under this Strategic Objective, USAID has focused attention on the health and housing areas. Progress made to date needs to be deepened to ensure the sustainability of well targeted social benefits and services in a market economy. One strategy for deepening the reform is coordinated work at the local level, as has already been shown in an intensive demonstration site at Karakol. Thus, work on this Strategic Objective will be coordinated with work on the Strategic Objective for local self government and with assistance provided by other donors.
USAID Role and Achievements to Date: USAID's most significant achievements in restructuring the health sector in Kyrgyzstan has been the pilot health reform project in Issyk-kul Oblast. Considerable progress has been made. Market-based insurance schemes were introduced. Eighty-one new family group practices have been established within the past year in the pilot oblast, resulting in a shift from costly hospital-based care to less expensive outpatient treatment. Eighty percent of the entire population of Issyk-kul has now enrolled in the family group practice of their choice. A new provider payment system which encourages primary care physicians to treat more and refer less to specialty hospitals was instituted. A rationalization of health resources plan was also introduced, resulting in the closure of one inefficient hospital. Given the success of the early pilot effort, World Bank funds are being used to extend the Issyk-kul work into two other oblasts.
The housing sector program has focused on working with government counterparts at the local and national level to develop a system for transferring authority for housing maintenance to those with the highest stake, namely the residents and owners of the buildings in question. In 1997 and again in 1998, efforts will be made to implement and broaden the policy changes adopted in 1996, with a view toward solidifying private ownership and maintenance. Finally, USAID programs directed toward NGOs also have an important local government dimension and can be used both to ensure more effective social delivery and bring about change in targeted communities.
Description: USAID, a key player in assisting the social sector reforms in Kyrgyzstan since 1993, anticipates taking further steps to deepen the reform efforts. At this point, USAID plans to focus and complete the pilot work in Issyk-kul oblast. This will make it fully operational and provide a viable health reform model for the World Bank to replicate in two other oblasts. In addition, USAID will concentrate on national health reform policy development based on lessons learned in Issyk-kul. USAID will complement World Bank efforts by providing health reform assistance in an additional two oblasts. The combined USAID and World Bank efforts would thus ensure that some 90 percent of Kyrgyzstan's population is covered by a health care delivery system consistent with a market-oriented economy in a democratic society. USAID may also assist the government in attempts to rationalize and reduce subsidies for housing and municipal services at the local level.
Host Country and Other Donors: Various Government of Kyrgyzstan ministries, local level government officials and government employees, World Bank, UNDP, UNICEF, UNFPA, WHO and EU-TACIS are all involved in activities with a local government dimension. As noted, the World Bank is an importantpartner in a number of activities related to social sector reform.
Beneficiaries: Immediate beneficiaries include physicians in family group practices and their clients. Ultimately, at least ninety percent of the citizens of Kyrgyzstan benefit, especially those in that segment of the population classified as vulnerable (e.g., elderly pensioners, women, children).
Principal Contractors, Grantees, or Agencies: Abt Associates, Inc. is working in the health reform arena. International City and County Managers Association (ICMA) is working in the housing sector.
Major Results Indicators: Baseline Target
No. of cities with pilot housing 0 (1994) 5 (1997) allowance program
% of central health budget allocated 30% (1994) 50% (1999) to primary health care
% of hospital and outpatient care 0 (1994) 80% (1998) reimbursed on incentive basis
Number of independent primary care 0 (1994) 80 (1998) practices
% market share of private pharmacies 12%
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