Kyrgyzstan and eurasian integration: minimizing the related risks

Currently Kyrgyzstan is working on joining both the Customs Union of the Eurasian Economic Community and the Common Economic Space of Russia, Belarus and Kazakhstan. However the process of Kyrgyzstan’s integration is associated with certain risks, which became even more pronounced in October, 2012 as the political crisis in the country worsened. This paper shall offer a detailed review both of these risks and of possible ways to overcome them.

Currently Kyrgyzstan is working on joining both the Customs Union of the Eurasian Economic Community and the Common Economic Space of Russia, Belarus and Kazakhstan (Kyrgyzstan is a longstanding EurAsEc member).

Kyrgyzstan’s government passed the decision to join the Customs Union on April 11, 2011. On October 19, 2011 in line with the EurAsEc Interstate Council’s decision a task group was formed to address issues related to the new state’s participation in the Customs Union. At a regular meeting on September 18, 2012 the Eurasian Economic Commission Panel approved an action plan for Kyrgyzstan joining the Customs Union. Vladimir Putin’s visit to Kyrgyzstan on September 20, 2012 served to expedite the country’s incorporation into Eurasian integration institutions. The Kyrgyz authorities have long been ready for this. Back in 2009, President Kurmanbek Bakiev made an announcement concerning the country’s forthcoming entrance into the Customs Union. In 2011 the incumbent President Alamzbek Atambaev, then prime-minister, stated that “starting on January 1, 2012 Kyrgyzstan will become part of the Customs Union”.

However the process of Kyrgyzstan’s integration is associated with certain risks, which became even more pronounced in October, 2012 as the political crisis in the country worsened. This paper shall offer a detailed review both of these risks and of possible ways to overcome them.

Vladimir Putin’s Visit: The Hydropower Industry as Another Stake in “the New Great Game”?

Photo: rushydro.ru
Layout Akbulunskoy HPP - the first station of the
prospective Upper Narynski hydroelectric power
chain

During Vladimir Putin’s visit to Bishkek, Russia met Kyrgyzstan halfway in terms of debt relief and rendering economic assistance for the construction of hydropower plant Kambarata-1 and the Upper Narynski hydroelectric power chain. Moscow even made a concession concerning the distribution of equity shares (50/50) for these facilities: previously Russia insisted on the acquisition of a 75 percent stake in both projects. Russian economic assistance is vital to Kyrgyzstan, because the country is undergoing a severe economic and political crisis. In exchange, Russia gained an extension, to 2032, of the lease term for its military bases, which are now formally considered one integrated base on Kyrgyz territory. The need for a Russian military presence in Kyrgyzstan is self-evident: the situation in the region is tense, and after the NATO forces withdrawal from Afghanistan in 2014 will deteriorate further. Besides, the bases serve as a certain guarantee against excessive external pressure, primarily from Uzbekistan, particularly in electric power issues.

Notwithstanding the clear timeliness of the agreements reached, they possess one aspect indicative of a possible new aggravation of the multifaceted relationships between Russia, Kyrgyzstan, Uzbekistan and the United States. On the eve of Putin’s visit, official Tashkent expressed its absolute opposition to any and all hydropower projects that could potentially result in a diminished water supply to Uzbekistan. Moreover, while visiting Astana, President Islam Karimov even mentioned the possibility of a “water war.” Tashkent’s position on this was backed up by Ashkhabad. Uzbekistan made an attempt to win over Kazakhstan as well. As a result, antagonism between Moscow and Tashkent could intensify gravely, alongside old disputes over water-related issues between Tashkent and its neighbors (primarily, Tajikistan and Kyrgyzstan). More important still is the recent rapprochement between Tashkent and Washington, which resulted in the former’s secession from the Collective Security Treaty Organization (CSTO) in summer 2012. In view of the above, any disagreement related to water resources between Russia and Kyrgyzstan on one side, and Uzbekistan and the United States on the other, carry the inherent risk of a protracted conflict affecting the whole region.

To conclude: a major risk associated with Kyrgyzstan’s Eurasian integration is geopolitical in nature, namely the increased opposition along the Russia-United States and Uzbekistan-Kyrgyzstan vectors (potentially with an additional conflict between Uzbekistan and Tajikistan). This risk may dramatically aggravate the broader security problems in the region that are likely to arise after 2014. However, inactivity is not an option for Russia since water is the main resource available for the development of the Kyrgyz economy, which is currently in decline.

Therefore Russia faces the following dilemma: its assistance to Kyrgyzstan in using hydro resources as part of its Eurasian integration could lead to grave regional conflicts, whereas the failure to provide this assistance would exacerbate the current economic crisis in the country.

The Ongoing Crisis of Kyrgyz Statehood

Photo: ria.ru
The coup in 2010: April 7, protesters attacked
the government building

According to the American Failed State Index (2011) Kyrgyzstan is the most troubled state among the former Soviet republics (a similar assessment is provided by the “Modern Political Atlas” published by the Moscow State Institute for International Relations Publishers [1]). In the aftermath of two revolutions (the consecutive overthrow of Askar Akaev in 2005 and Kurmanbek Bakiev in 2010) the country faces an obvious crisis of statehood. It is most notably manifest in the weakness of law enforcement authorities due to the lack of funding and corruption. Democratic tools are failing, while the coup remains a tried and tested technique. Given the clan society and the traditional North-South opposition, political leaders have no trouble summoning great masses of fellow villagers or people from their region. They are packed onto buses and driven to the capital. There, unemployed or impoverished city dwellers join the crowd – for a fee. Criminal elements, including drug dealers, may also be involved. Then the crowd, often brandishing sticks and hurling stones, would storm Government House and, if successful in overpowering the police force (which is neither well manned nor well armed), then another coup takes place. The irony is that it is relatively cheap to arrange this kind of “revolution.” It is even cheaper than a regular parliamentary election campaign (the parliament in Kyrgyzstan is and has long been more influential than in other Central Asian states). Therefore it is not difficult for anyone unhappy with the current power distribution to trigger another “revolution.”

That is exactly what happened on October 3, 2012: Parliament members representing the southern areas attempted a coup. That day on Ala-Too Square delegates Zhogorku Kenesha representing the party Ata-Zhurt (backed by southerners, previously closely connected with the forces who supported ousted President Bakiev), Kambychbek Tashiev, Talant Mamytov and Sadyr Zhaparov organized a rally under “For Nationalization of Kumtor” (a gold field owned by a Canadian investor that is one of the main sources of the State Budget income). There was no doubt that nationalizing the business would have caused the country’s economy, which is catastrophic as it is, to decline yet further.

The statement made by Prime Minister Dzhantoro Satybaldiev that the nationalization of a foreign company’s property is unacceptable, followed by the Parliament’s reported intention to support the Premier’s position, caused outrage among the protesters. The gathering totaled approximately 600–1,000 people. At one point, some of them rushed the House of Government. But the special security force and mounted police thwarted this nascent revolution. However, once the parliamentarians who initiated the rally and, the prosecution claims, called for of the violent overthrow of the government, were arrested, new civil disturbances arose in the country’s south: the main highway connecting north and south was blocked by protesters. There is no doubt that even this, by Kyrgyz standards “tame,” upheaval inflicted yet another severe blow to the already-ailing economy and scared potential investors further away.

This creates another dilemma for Russia to deal with while pursuing its Eurasian integration policy: if Kyrgyzstan becomes integrated into Eurasian institutions, those institutions, and Russia as their major sponsor, would have to assume full responsibility for the continuing political crises plaguing this country.

Risks Associated with Kyrgyzstan’s Eurasian Economic Integration

Photo: time.kg
Clothing manufacture, Kyrgyzstan

Kyrgyzstan has adopted a very particular economic model, sharply distinguishing it from other Central Asian states.

Some areas of economic activity specific to Kyrgyzstan are quite promising in terms of the country’s integration with Russia, Kazakhstan and Belarus. For example, the domestic textile industry, thanks to its cheap workforce that relies chiefly on female labor, is growing, while in the rest of the former Soviet states (with the exception of Turkmenistan and Uzbekistan) it is in decline. Revenues from the direct export of textile goods manufactured in Kyrgyzstan stands at USD 1.1 billion per year or 22 percent of the country’s GDP.

However, not all the economic trends specific to Kyrgyzstan are equally beneficial for the integration process.

First, Kyrgyzstan is now one of the main distribution centers of Chinese products for the other former Soviet states (it should be noted that, for the most part, these products enter the country through the black market, which is evident through the appalling disparity between Kyrgyz and Chinese official trade volume statistics). Small businesses power this trade. There are now 800,000 small-time traders that profit from re-exporting goods, out of a total population of 5 million. Russia and Kazakhstan are the major markets for 90 percent of these traders.

Incidentally, this sector of the Kyrgyz economy also primarily involves women: most shuttle traders are female. Dordoi, Central Asia’s largest commercial center, is one of the hubs of this trade, its annual turnover reaching USD 1 billion or 20 percent of the country’s GDP. Once Bishkek joins the Customs Union, there could be a dramatic increase in the scale of this business involving de-facto smuggled Chinese goods. Correspondingly, this would expedite the already apparent processes of former Soviet states becoming merely raw materials suppliers for China.

Second, Kyrgyz import duties are relatively low (about 50 percent of the equivalent Russian tax). Integration would result in skyrocketing prices on most imported goods due to this increase in import duty. The situation may cause a repeat of the events in Kazakhstan, where surging prices almost reached those in Russia (Russian prices are quite high in comparison to those in the rest of the CIS). Even in the relatively prosperous Kazakhstan, the ensuing inflation caused public outcry and nationalist anti-Russia sentiment. In Kyrgyzstan, where a great proportion of the population is living from hand to mouth, the price surge that could result from integration with Russia could trigger another revolution.

Third, Kyrgyzstan today is one of the largest (alongside Tajikistan and Uzbekistan) sources of migrant-workers for Russia and Kazakhstan. According to various assessments, 400,000 to 1.5 million people of Kyrgyzstan’s total population of 5 million have gone abroad to work in these two countries (1; 2) (the latter figure is obviously overstated). Hence there is a potential risk that integration would result in looser controls over migrant flow and therefore in a dramatic rise in migrant numbers, since the common economic space presupposes free travel for the workforce and equal workers’ rights in any and all member-states.

Fourth, as the UNODC (United Nations Office on Drugs and Crime) report noted, the removal of border control by Russia and Kazakhstan for Kyrgyzstan and Tajikistan could lead to a dramatic increase in drug traffic along the Afghanistan-Tajikistan-Kyrgyzstan-Kazakhstan-Russia-Eastern and Northern Europe route (“the Northern route”). Even today Russia, as the largest consumer of Afghan heroin, according to official statistics, loses up to 30,000 lives each year to the drug.

All these risks present Russia with yet another political dilemma: accepting Kyrgyzstan into Eurasian integration institutions would significantly aggravate their difficulties while not doing so would fail to solve any of Kyrgyzstan’s issues, which would continue to affect Russia and Kazakhstan, regardless of the state borders.

Minimizing the Risks Associated with Kyrgyzstan Joining Eurasian Integration Institutions

Photo: centralasiaonline.com
Kyrgyz migrants in Bishkek-Moscow train

Provided Russia and the appropriate organizations (such as the Eurasian Economic Commission) support accepting Kyrgyzstan into Eurasian institutions under a special policy designed to address Bishkek’s problems, the above risks could be minimized. If, however, Kyrgyzstan joins these institutions without tackling these problems, it is highly likely that the idea of integration among former Soviet states would be jeopardized. The stakes are high. However, it should be remembered that solving Kyrgyzstan’s problems will require tremendous effort and material investment.

Measures designed to address the issues facing Kyrgyzstan should be implemented in stages.

Stage one: providing assistance in aligning, upgrading and strengthening law enforcement agencies. Naturally, anti-drug-trafficking agencies should take priority. Anti-corruption measures need to be supported, and the efficiency with which governance mechanisms work should be enhanced, particularly regarding the customs service. This would help eliminate the risk of Kyrgyzstan becoming a “failed state.” It is equally important to establish tight control over migration flows, the starting point for this being within Russia.

The second stage would require economic assistance, investments and loans to help overcome the negative effect of rising prices following integration. Adaptation measures would be especially essential for the shuttle trade and textile industry.

The third and most difficult stage concerns the Kyrgyz hydro resources and geopolitical issues. In his address in Bishkek, President Vladimir Putin rightfully stated that Russian assistance to Kyrgyzstan in building hydroelectric power plants must not hurt the national interests of Uzbekistan. The vital interests of key extra-regional players (primarily the United States and China) must also be considered, as they could block the construction at any stage if they feel pressured by “hydro investments.”

To avoid this scenario, we believe that the issue of hydropower plant construction in Kyrgyzstan and Tajikistan ought to be addressed in a single package. A consortium should be set up to create this, including the four Central Asian states (Uzbekistan, Tajikistan, Kyrgyzstan and Kazakhstan) and the four extra-regional players (Russia, China, the United States and the EU). The extra-regional players should compensate Uzbekistan for its losses in fresh water supply and also provide Tashkent with a guarantee that water will not be used against it as a weapon.

1. Modern Political Atlas: The Attempt at Multi-Dimensional Statistical Analysis of Political Systems in Modern States. Moscow State Institute of International Relations Publishers, Moscow, 2007. p. 246.