Economy of Kyrgyzstan

Written by Sandeep Nehra

The Kyrgyz Republic launched a comprehensive program of economic reforms in 1991. Currently, the entire world community has recognized the significant positive changes in reforming the country’s economy. In 1992 have been liberalized all basic prices, in May 1993, Kyrgyzstan has introduced National currency -SOM. As a result of intensive privatization in 1992-93, to the end of 1998 the share of private sector was as follows: industry 87%, trade – 97%, construction – 57% and transport – 55%. Since 2000, there is an active role in privatization of strategic sectors of the country, such as energy and telecommunications.

The level of privatization in the country looks like this: in industry – 88.6%, construction – 58.7%, in transport – 56.9%, trade and public catering – 97%, in domestic service – 99.85%. As a result, most enterprises are in the private sector and their activities are regulated by market relations.

As a democratic country, Kyrgyzstan is implementing a mixed (converged) economic system, the basic principles of Roy are: free enterprise, free pricing system, free competition, state regulation. Moving to a new economic system and break the old production relations led republic in the early years of independent development, as well as other CIS countries, to the deep economic crisis. After 1990 production declined rapidly, and in 1995 reached the lowest point. For example, in 1995 gross domestic product (GDP) amounted to only 50.3% from 1990 levels (100%), gross industrial product – 35%. In 1996 the recession has slowed, production has stabilized, for example, compared with 1995, GDP increased by 5.6%, industrial production – by 10.8%, agriculture – 13.1%. And in 1997, compared with 1996, GDP grew by 10.4%, industrial production – 46.8%, agriculture – 10.7%. However, if the 1995 deficit state, budget in relation to GDP was 11.6%, while in 1996 it dropped to 5.9% in 1997 up to 4.6%. In 1998-2000, this provision remained. In 2000 GDP increased by 5.1%, inflation fell to 18.7%, the deficit state. Budget (relative to GDP) has decreased to 2%. However, the marked achievements still not be considered stable. In economic development there are a lot of evidence of the continuing crisis for example, unsatisfactory balance between aggregate demand and aggregate supply. Calculations made at the macroeconomic level, given the masses of cash and the speed of its circulation, showed that the ratio of aggregate demand to GDP does not change in the right direction.

Due to lack of cash offers business people of the republic is limited to the availability of affordable credit for the development of production of goods. Banks of the republic issue mainly short-term loans for trade. Long-term loans are extremely low volumes. Exchange rate National Currency – Somalia has not yet stabilized, and with 10.8 catfish at 1 U.S. dollar in 1995 increased to 47.7 SOM in 2000. Securities market in the country in its infancy. His influence on capital investment in joint-stock enterprises, there is very little.

The development of the industrial sector is provided mainly by electricity, nonferrous metallurgy and food industry. Mechanical engineering is still continuing to reduce production volumes. Every fifth enterprise in the industry is simple. An increasing number of companies do not cover the costs of income. 20-30% of their productions were not realized. Additional difficulties are posed by the existence of non-payment industry.

There are developments in the agriculture field and mainly by the peasant households. Gross grain harvest remains high, thus maintaining the overall growth. At the same time decreasing the production of wool, decreased productivity and reduced planting area has been drastically reduced the number of livestock and poultry. Currently, agriculture is declining because they cannot complete the transition to market economic conditions.

Despite of some recovery of passenger and freight, there is no improvement in the situation and in transport, due to a high degree of wear of the rolling stock. Progress in the Investment Policy relate, primarily, with foreign investment in gold production at the field “Kum-Ter”. Consequently, the socio-economic objective continues to be extension of its own and external sources of capital investment to improve and revitalize internal economic situation.

The domination of imported goods (70%) in the consumer market, the loss of local producers market their own sales, development of criminal relations in trade, a rare use of marketing research inflict great harm to the economy.

Stabilization of the economy relies on the strengthening of financial and monetary system, a substantial decline in inflation. Through the use of solid monetary policy, inflation is in the range 17-19%, the loan rate was reduced to 40-50%. The problem of financial stability cannot be solved in isolation from the economy. Economic crisis manifested itself even in the face of rising production in 1999-2000 in the form of unsustainable trends of monetary and financial development.

The most correct way to achieve ultimate financial stability and enhancing the sustainability of catfish and establish the permissible lower limit of inflation – is raising the real economy and the saturation of the domestic market by domestic, relatively cheap and quality goods and services. The first step is to develop the processing of agricultural products, to establish activity of enterprises of food and light industry, to take a course to expand export opportunities for the economy of the republic.

In the first phase of economic reform was decided to create the environment for the development of commodity-market relations: introduced private property and freedom of entrepreneurial activity, eliminated the monopoly of state. and collective enterprises, much has been done to create a broad competitive environment in the form of individual and private, private equity, joint ventures and foreign enterprises, farmers’ associations and other business forms, introduced two-way two-tier credit and banking system, liberalized prices. In the system of market economy requires full-time commitment for the operation of all its effective mechanisms. All this work in the country is scheduled to implement the second phase of economic reforms. In essence, it is necessary that each individual company or industry, every company or State Joint-stock corporation at the micro level solved the problems of the subject of structural adjustment, i.e., knew what to produce, how and for whom to produce. Thus, the challenge is to select the types of products, k-rye used to market demand, have been able competitive price and quality, as well as find markets for their maximum profit. Currently, the country is moving towards a mixed economic system. It builds convergent social system, which combines the market and planning system, where it is obligatory to state regulation.

In late May 2001 at the National Assembly adopted the Comprehensive Development Framework of the Kyrgyz Republic till 2010 “(abbreviated CDF). The purpose of this program is to achieve political and social welfare of the people of Kyrgyzstan. CDF provides a reduction in poverty by 2010 twice. This is necessary to maintain average annual GDP growth of 5% and reduce inflation to 5% per year. Projected economic growth can be achieved if the 2010 level of gross domestic inflation of 20% of GDP. Currently, he is 17% of GDP.

It is assumed that agricultural production fell by 2010 in nominal terms from 38.5% to 31%. At the same time, industrial production should rise from the present 21% of GDP to 32%, and the service sector – from 32.5 to 38%.

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