Kyrgyzstan attempts to slow inflation

KARA-BALTA, Kyrgyzstan – Rising food prices in Kyrgyzstan have aroused a public outcry, but the government is so far resisting the urge to impose price controls.

Prices for flour and bread have increased 25% from last year; fruit and vegetables, 12.7%; and clothes and shoes, 9.4%, according to the Economic Regulation Ministry. Those increases are countrywide averages. In some areas, such as Bishkek, prices have risen even more.

Explanations vary, ranging from the 2010 drought to commodity speculation to 2010’s political upheaval. But whatever the reason, consumers are struggling.

Among the many Kyrgyz who barely make ends meet is Nina Semenova, 70, from Kara-Balta, Chui Oblast. She supplements her meagre pension by mopping hallways in apartment buildings.

Each tenant pays her 20-25 KGS (US $0.42-0.53) monthly. Added to her monthly pension of 3,000 KGS (US $63), this is enough for her to eke out a living. But now rising prices are making some groceries a luxury.

“I haven’t bought meat, cheese or sausage for a long time,” she said. “Potatoes cost 28 KGS (US $0.63 per kg), and now … ten eggs cost 70 KGS (US $1.48), even though two weeks ago they cost only 60 KGS (US $1.26).”

Retailers have no choice but to pass on wholesale price increases, Gulnara Yazova, a grocery store manager in Kara-Balta, said. “Customers are bawling us out, but what can we do?”

Dependence on imports contributes to inflation

The country is overly dependent on imports, but the government frowns on price regulation, Shamsiyev Nassridin, director of the Economic Development Ministry’s Department for Regulating Economic Processes, said.

“We buy foodstuffs from other countries, and we produce very few of our own groceries, except for meat and potatoes,” Nassridin said. “We must increase our production and reduce our dependence on imports.”

Largely mountainous, only about 7% of Kyrgyz land is arable.

On January 12, First Deputy Prime Minister Omurbek Babanov convened officials from various economic ministries and institutions to discuss the soaring price of food. Participants agreed on legislative proposals to modify mechanisms for regulating prices.

“Existing legislation does not fully allow us to react promptly to the speculation-caused price increases in the Kyrgyz market,” Babanov said. “The government needs to use its leverage as quickly as possible to reduce the rise in food prices.”

The government’s position is easy to understand, Economic Development Ministry marketing analyst Zharobek Salmandiyev said.

“Kyrgyzstan supports democratic principles, and therefore the government has not been able to regulate prices,” he said. “But we have more than 1.5m people living in extreme poverty, and we cannot remain indifferent to such a situation.”

Government considers policies to fight inflation

The government is considering various policies to fight inflation, Salmandiyev said: “Many countries set a price ceiling for the most essential products. ... Then, we are planning to (have our law enforcement agencies) conduct raids to demand that unscrupulous sellers drop their prices.”

The situation will improve this autumn, Murat Dzhumakadyrov of the State Material Reserve Fund said.

“Prices have risen an average of 15% over last year, but this happened because after (then-president) Kurmanbek Bakiyev (was ousted in April 2010), the State Material Reserve Fund did not have stockpiles of flour, fuel or essential foods,” he said. “But this year we will thoroughly prepare ... and use stockpiles to hold down prices.”

A number of political and economic causes brought on inflation, Kyrgyz State University economist Aleksandr Doronin said.

“The events of last April and June in Kyrgyzstan as well as the fires and drought in Russia have undoubtedly had an impact on prices. Plus, a lot of money was spent on the referendum and elections. But now the government has been formed, and we’ve succeeded in avoiding a parliamentary crisis, so we can expect economic growth and, consequently, a stabilisation of prices,” Doronin said.

GDP is projected to increase in 2011 by over 6% to 238.3 billion KGS (US $502.5m), but inflation for the same period is projected to be 7.2-9.5%, Economic Regulation Minister Uchunbek Tashbayev said. Inflation in 2010 was 20%, he said.

“The main growth for 2011 will be in the construction sector. Its share of the GDP will increase from 6% to 7.7%, and the volume of construction work will increase by 40%,” he said. Reconstruction in the riot-torn south is one driver of construction work.

Political stabilisation will lead to economic and price stabilisation, Tashbayev said.

Semenova said she is looking forward to spring, when heating bills go away, enabling her to buy a little more food – unless inflation ruins her hopes.