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Economists say much will depend on steps interim government takes
By Aibek Karabayev
BISHKEK – Last month’s regime change is creating investment challenges for Kyrgyzstan.
The problem is threefold: first, some fear investors will avoid Kyrgyzstan; second, some wonder what Kyrgyzstan will do to ensure the investments go where they are supposed to; and third, some ask what will happen to projects approved but not completed under ousted president Kurmanbek Bakiyev.
“Kyrgyzstan has grown ever less attractive to external investors during the past five years … because any newcomer to our market was compelled to enter into negotiations with Bakiyev’s appointees”, former parliamentarian and economist Kubanychbek Idinov observed. “It was the same way with (Askar) Akayev in power, although the scope (of corruption) was not that wide”.
“There used to be a circle of people to negotiate things with”, said Askarbek Asanliyev, director of the Ideas and Economy Centre. “Now, making new contacts will take a lot of time”.
Zhumakadyr Akeneyev, a professor at Kyrgyzstan National University who led the supervisory Development Fund until April 7, said the precarious political situation goes hand in hand with economic instability, so investors want to see what the interim government does.
To keep foreign investors from retreating, the interim government has issued a decree on protecting investments.
“Those hampering the attraction of investment as well as those unlawfully seizing assets of any form of ownership shall be subject to criminal or civil liability”, the interim government said.
That decree follows alleged embezzlement by the Bakiyev family.
In the past, Kyrgyzstan sought investors for the development of gold deposits; the re-commissioning of some Soviet-era industrial plants (the Maili-Sui light bulb factory, the Khaidarkan mercury plant and the Kristall semiconductor plant); and the construction of a second hydropower plant unit at Kambar-Ata.
Acting Financial Police Chief Erkin Bulekbayev said the Bakiyev regime used to launder investments for such projects through several business structures and transfer them abroad via the Central Development Agency (TsARII), Development Fund and AsiaUniversalBank.
“Maxim Bakiyev (the former president's younger son), as TsARII’s head, negotiated large credits on behalf of the state, attracting investors to Kyrgyzstan”, an anonymous source with the General Prosecutor’s Office said. “That money ended up in the TsARII-controlled Development Fund’s bank accounts held with AsiaUniversalBank and four other large private banks inside the country”.
These funds “earn(ed) considerable illegal profits for the Bakiyev family,” acting Finance Minister Temir Sariyev said.
The interim government dissolved TsARII and transferred the Development Fund to state control. A new agency will regulate investments.
To prevent the unlawful outflow of capital, several large banks have come under the National Bank’s control, and the government said that it now carefully monitors all financial operations.
At a news conference April 12 in Bishkek, acting First Vice-Premier Almazbek Atambayev said Moscow has pledged to invest in Kyrgyzstan.
However, Russian companies fear Kyrgyzstan might nationalise its industrial enterprises, AtomPromResursy Group leader Andrei Cherkasenko told BFM.ru. He expressed concern the interim government might disregard the commitments made by the deposed regime.
Spokesmen for the two largest foreign companies based in Kyrgyzstan said they do not see any threat to further co-operation, although “some apprehension is in the air”.
Idinov downplayed that risk.
“Larger-scale projects involving foreign capital and loans, among them the Kumtor gold mine development, the hydropower plant construction in the south, and the TsARII projects, will continue”, he said. “The National Bank has announced the money exists to finance those projects and that Russia is ready to support them, which means the process will go on”.
National Bank deputy chief Zayir Chokoyev told journalists April 15 that in the first week since the revolution US $200m had disappeared from AsiaUniversalBank’s accounts. Agencies are trying to track down the funds.
The interim government does not rule out that the US $200m might have been part of a larger loan issued by Russia – US $300m, which was to fund Kambar-Ata-2 hydropower plant construction; and US $1.7 billion, which turned Russia into a co-sponsor of the Kambar-Ata-1 project.
Akeneyev said the greater part of the first loan hit the Development Fund’s bank accounts. “Igor Chudinov (ex-director of the Fund) reported to the supervisory board on money transfers from Russia”, he said.
US $100m was used to construct the Kambar-Ata-2 hydropower plant, US $35m was on deposit, and US $50m was earmarked for TsARII projects, Chudinov told the government.
Sariyev cited different figures: “Of a total of about US $280m there, US $100m was indeed invested in Kambar-Ata-2, with the rest transferred to the accounts of a number of private banks”.
Financial scheme participants also received money directly from investors, Idinov said. Large western companies paid the Kyrgyz government (sometimes up to 40%) to work in the republic, he said.
Idinov vowed that the government has moved to clear up problems. “There will be no corruption and business practises will be more transparent. These are the conditions that investors need”.