Letters to the Editor
Emine Gürgen's article, "Central Asia: Achievements and Prospects," in the September 2000 issue presents a comparative analysis of five Central Asian economies. Although Kazakhstan has much in common with other countries in Central Asia, its economy and reform path differ from theirs considerably. Some of the statements the author makes about the Central Asian states as a group do not mention these differences and may therefore create a misleading impression of Kazakhstan. For example, the author states that, "[i]n almost all cases," prices for essential foodstuffs, energy, public transportation, and utilities were controlled. However, prices have not been regulated in Kazakhstan since 1995. Further, social spending and public investment in the Central Asian countries are described as inadequate and inefficient. In Kazakhstan, public services were reformed by the Government Service Law of 1999, which redefined government service, raised standards for civil servants, and established regulations for public employment; the government has adopted a public investment program for 2000-2002.
The author's claim that the banking systems of the Central Asian countries are still fairly rudimentary is also incorrect with respect to Kazakhstan, which has the most advanced banking system and the strictest banking supervision of any of the former Soviet republics. Since 1993, Kazakhstan has had a two-tier banking system. The first tier consists of the National Bank of Kazakhstan (the central bank), the second tier of all other banks. Kazakhstan has introduced international banking standards covering capitalization, asset diversification, management quality, and accounting, as well as stringent minimum requirements for banks' charter capital. New banking legislation enacted between 1993 and 1999 includes the Law on Banks and Banking Activity, the Law on the National Bank of Kazakhstan, and the National Bank Normative Acts and Decrees. The statement that "In most of these countries . . . banking systems continue to be heavily state controlled. . . ." is also misleading. By 1999, only one bank in Kazakhstan—the Export-Import Bank of Kazakhstan—was still fully state owned. (The government held a stake of less than 35 percent in the Halyq Savings Bank.) The state's involvement in Kazakhstan's banking system is limited to central bank supervision of commercial banks, and the central bank is fully independent.
The article cites the European Bank for Reconstruction and Development's transition indicators as showing that the Central Asian countries lag behind most other transition countries with respect to enterprise restructuring and price, trade, and financial sector reforms. It would have been helpful to have specific details about each country.
Although the author claims that external borrowing by the Central Asian countries has grown rapidly, Kazakhstan's foreign borrowing has been declining by 4.4 percent annually. By the end of 2000, the government's foreign indebtedness was $3.9 billion—$127 million less than the year before.
The criticism that the Central Asian countries do not have a systematic approach to improving the investment climate also does not apply to Kazakhstan, whose medium-term investment strategy is reflected in the Law on State Support of Direct Investments (February 1997), the Program for State Investments of the Republic of Kazakhstan for 2000-2002, the Government Decree on the Adoption of the Program for Government Investments for the Period 1999-2001 (June 1999), and the Government Decree on the Program for Attracting Foreign Direct Investments to Kazakhstan for the Period 2000-2002.
Kazakhstan's macroeconomic indicators and regulatory environment improved dramatically in 1999, but the use of outdated data in the article makes it difficult for readers to gain insight into Kazakhstan's present circumstances. Even the data for 1999 are based on projections made in 1998. Moreover, geographic proximity by itself is not a good criterion for lumping countries together for analysis. Ignoring the differences between the Central Asian countries only makes it harder for us to understand them. Kazakhstan's per capita GDP (in terms of purchasing power parity) was $5,000 in 1999, much closer to Belarus ($6,700) and Russia ($6,800) than to the Kyrgyz Republic ($2,400) and Tajikistan ($1,000) (National Statistics Agency of Kazakhstan). In 2000, Kazakhstan's trade with Russia amounted to $4.2 billion, with Tajikistan to only $58 million. These figures show that Kazakhstan has stronger economic relations and greater parity with Russia and Belarus than with its Central Asian neighbors.
Emine Gürgen responds:
In grouping the Central Asian countries, I did not mean to imply that Kazakhstan was at the same stage of development as the others but, rather, to draw a distinction between the slow and fast reformers in the region, in the hope that the former would learn from the latter. The differences between countries were highlighted in the article, and Kazakhstan was acknowledged to be the fastest reformer of the group.
Mr. Sazanov criticizes my use of outdated data. The cutoff date for the data underlying my analysis was 1998/99; when the issue went to press, some of the information for 1999 was still preliminary. Hence, the article could not possibly have discussed the changes that took place after mid-1999.
The article covers five countries, several years, and many topics. Therefore, the changes in Kazakhstan's banking system and the steps taken to encourage foreign investment may not have been spelled out in detail. However, reforms in these two areas still remain critical in the Central Asian countries.
The article notes that all the countries in the group made considerable progress in price liberalization. As in many other areas, Kazakhstan may have taken the lead in this, but some price controls were still in place when I resided in Almaty in 1995. Again, the article does not go into detail but simply lists the areas where price controls remained.