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Down And Out In Central Asia

Central Asia -- Combo photo of Central Asian leaders
Central Asia -- Combo photo of Central Asian leaders

The first quarter of 2016 has just ended, a good opportunity for the Majlis to look at how the Central Asian states are faring economically. There have been some grim predictions on the podcast in recent months about how deep the economic crisis would bite into the Central Asian states.

So to review the situation, RFE/RL's Turkmen Service, known locally as Azatlyk, brought the Majlis into session.

Azatlyk Director Muhammad Tahir moderated the panel. Joining the discussion from Bishkek was the Central Asia editor at Eurasia Net, Peter Leonard. From London, Alex Nice, who covers Central Asia, among other areas, as a regional specialist at the Economist Intelligence Unit, participated. Those three pretty much covered the important points but I threw in a couple of comments anyway.

Figures for remittances in 2015 from the millions of Central Asian citizens working in Russia are in for the Central Asian states and they showed what many feared.

Leonard said that, in Tajikistan, "the drop in remittances from 2014 to 2015 was around 67 percent, so that's a drop, in other words from about $3.8 billion to [some] $1.3 billion. That's the country that's feeling the pain the most." He added, "The figures are no more reassuring for Kyrgyzstan and Uzbekistan."

Indeed, remittances from Russia to Uzbekistan dropped from some $5.581 billion in 2014 to around $3.05 billion in 2015. In Kyrgyzstan, remittances from Russia fell from approximately $2.06 billion in 2014 to some $1.38 billion in 2015.

However, the decline was not due to migrants sending less rubles home. Bank officials in Kyrgyzstan and Tajikistan noted more rubles were actually transferred from Russia in 2015 than in 2014. Those Russian rubles were simply worth less than in previous years.

These remittances from migrant laborers mainly go towards providing for family members back in Central Asia. For these relatives the loss of income from abroad compounded the economic problems they are already facing at home.

Unpaid Salaries

The value of all the Central Asian national currencies has fallen since the start of 2015, in most cases significantly. The banking sector has been hit hard in Uzbekistan where last year the Central Bank said it was running out of actual cash. Leonard mentioned one of Tajikistan's largest banks "is on the verge of a collapse, pretty much a miracle that it hasn't formally collapsed already."

Wage arrears, largely unseen in Central Asia since the 1990s, have returned. Workers in Uzbekistan were already complaining last year about unpaid salaries that went back months in some cases. Among these workers were police and members of security forces. Even in opaque Turkmenistan stories have leaked out about some workers being paid in goods and chattel, such as sheep, rather than in cash. There are also reports from Turkmenistan that workers are being laid off, particularly in the country's gas sector, the backbone of the country's economy.

It was noted that oil-rich Kazakhstan has so far avoided some of these problems. "Kazakhstan simply is a much wealthier country," Nice explained. "And unlike Tajikistan and Kyrgyzstan they [Kazakhstan] have large external assets, a sovereign wealth fund, which they've used to try to have some sort of fiscal stimulus program."

But, at the same time, Nice pointed out, "In some ways the political impact is perhaps more interesting in Kazakhstan because you have this expectation of rising living standards." Leonard added that many people in Kazakhstan had grown "used to the comforts of middle class living whether it's buying a fancy new car or a house or a new kitchen or what have you, and now all of that is kind of going out of the window."

The topic of utility costs was raised. It always been a sensitive issue in Central Asia, the more so since 2010 when an increase in utility [and transportation] cost was one of the things that sparked protests in Kyrgyzstan which eventually turned into a revolution that ousted former President Kurmanbek Bakiev.

Cash Cow Short Of Cash

Authorities in Tajikistan, for example, have heavily subsidized electricity. The country is poor and the government sees utilities as a flashpoint for social unrest, particularly since the population faces chronic power rationing in winter.

Despite the subsidized rates, the national electricity company Barki Tojik is owed large amounts of money, not only from individuals, but, as Leonard mentioned, the country's main cash cow -- the aluminum factory in the town of Tursunzoda -- which is Barki Tojik's biggest debtor.

Barki Tojik, in turn, owes some $100 million, combined, to two hydropower plants located in the country – Sangtuda-1 and Sangtuda-2, which are majority owned by Russia and Iran, respectively.

All the same, Tajik authorities are loath to raise electricity rates. Kyrgyzstan, to a lesser extent, faces the same problem and Leonard noted that, there and in other Central Asian countries, "it's an inevitability that prices for utilities need to be allowed to float upwards."

Uzbekistan just raised utility costs at the start of April. Turkmenistan, since the economic crisis started to be felt, has gradually cut subsidies that the population long enjoyed, including subventions for gas, electricity and water, which once were free. "In the case of Uzbekistan and Turkmenistan that's a clear indicator of distress," Nice said. "These subsidies and essentially free services have been available for many years."

Kazakhstan runs the risk of following in Tajikistan and Kyrgyzstan's footsteps over utilities. Nice noted that Kazakhstan faces "high inflation, with food prices going up a lot, and imported good prices going up a lot." To prevent further straining the country's people, it is possible that "utility prices are going to be cut down by the authorities, which in the short term is obviously very good for the population, keeps inflation in check but what we then see is that these utilities run into arrears."

Lots Of Sticks, No Carrots

Nice recalled that, as part of Kazakhstan's measures to counter the economic crisis, authorities are privatizing hundreds of state-owned and partially state-owned enterprises, including utility companies. Demanding artificially low prices for output will not help attract investors to these companies.

The Central Asian governments seem hard-pressed to find ways to alleviate the mounting economic problems. "I think this is a real problem, that resources and capacity is limited, and the institutions to handle it [the economic downturn] are weak as well," Nice said.

The governments have vowed to punish those who violate financial rules and regulations. In every country, media have been reporting on the arrest of violators, ranging from top officials to currency speculators.

This seems to be the primary measure, so far, for these governments to combat their countries' economic problems. Leonard pointed out, that this "doesn't really auger very well for the future because it suggests that the governments of these countries really only have sticks and they haven't even gotten around to thinking what carrots they might be able to offer people."

This was an intense Majlis session. Many aspects of Central Asia's economic decline were discussed and our guests provided a wealth of information -- far more than could be included in this text.

A recording of the discussion can be heard here:

Majlis Podcast: The Impact Of The Russian Crisis On Central Asia