Speech of R. Otunbayeva on seminar “Effect of Global Crises on Constituency Countries”

September 13, 2012, 06:00

Statement of Madame Roza Otunbayeva, Former President of Kyrgyz Republic on seminar “Effect of Global Crises on Constituency Countries” 

Montreux, September 7, 2012 

Dear distinguished guests!

First of all, let me thank the Swiss authorities for hosting this event to mark the 20th Anniversary of our Joint Constituency in Bretton-Woods Institutions. 

Membership of our Constituency countries in the Bretton Woods institutions signaled the dawn of a new age in our respective histories. 

As with many other new members, the IMF and World Bank provided important assistance to Kyrgyzstan in early 90s to undertake comprehensive reforms to reorient its economy toward market-based systems, to eliminate external imbalances and tackle hyperinflation, and to integrate themselves into global trade and payments systems. 

The first phase of reforms focused on three interdependent components – liberalization, stabilization, and restructuring – that international institutions stressed where the policies needed for the transition. 

The transition-era disruption of economic ties hit the population of post-Soviet countries hard, prompting a search for new models of surviving. This, included a return to medieval subsistence farming for livelihoods and strong mutual help within family networks. It also destroyed state paternalism whereby Government provided for near everything in society, giving way to a tectonic movement from rural areas to cities and from where one studied and worked at one profession throughout one’s life to small business activities focused on the needs and opportunities of the day. 

Now, 20 years later, we can say that we learned “transitology” not as new dialectic theory, but through day-to-day life with many negative manifestations such as poverty, crime, corruption, shadow economy and polarization of urban spaces due to deepening social inequalities. 

We learned the hard way that mainstream transition theory, with its focus on liberalization and privatization, is not the basis for a movement from one political system to another one. We learned that this transition is far more complex and diverse. 

Our viewpoint in the intersection of old and new systems shows that many straggles remain to achieve a proper balance between economic efficiency and social justice. Social transformation, the creation new identities and institutions accountable to public — in other words reconfiguration of economic and political system — occurs in concrete historical and cultural milieu. 

This leaves many strategic aspects of economic policy to be tailored to national circumstances, and today it should be noted that the support of Bretton Woods institutions in some areas evolved according to these needs and was thus timely and crucial. 

The IMF program and World Bank development policy operations helped the Kyrgyz Republic to reach agreed medium-term fiscal consolidation path and catalyze critical donor support. 

But it is fair to say that significant immediate and medium-term challenges remain. 

The Kyrgyz economy remains vulnerable to external shocks, including adverse terms-of-trade shocks, the impact of a global downturn on remittances, and significant inflation of food prices. 

These factors tend to affect poorest part of population, youth and increasing gender disparities. 

We want to see the international development aid to focus more effectively as a key factor of economic growth of low income countries. Aid needs to focus on providing opportunities to create new jobs and bring impetus for cross-sector expansion. It should be noted that role of IFC in this development is important. 

It is also important for international organizations to utilize their capacity as truly global institutions to strengthen the transfer of knowledge among countries and between public and private sectors. A targeted effort needs to be made to improve mechanisms for horizontal ties on development issues. 

Multilateral institutions could also help countries in resolving regional and global issues, such as use of transborder rivers, regional infrastructure, and facilitation of regional trade, taking along world best practices in these areas. It would bring also synergy effect to political stabilization of “hot spots” in the region such as Afghanistan. 

Let me bring your attention to another big impediment of my country, which reflects common problem of many developing countries constrained with limited fiscal space for development. 

After the collapse of the Soviet Union many newly independent states were under pressure just persist as a state and were forced to extensively borrow under the hard terms and rapid negotiations. 

Today while our Government spends much of its resources on the education and health sectors, it is forced to devote many resources to servicing debt. This greatly reduces the fiscal space for investment, which obviously harms the long-term prospects for a low-income country as Kyrgyzstan. Our debt service burden depresses our growth by crowding out investment, import compression and ultimately declining growth. 

Of course ultimately resources for public investment will arise with the growth of economy, but we face a “chicken and egg” problem in that our huge external debt imposes a number of constraints on a country’s growth scenario. 

Using this opportunity I would recall the attention of distinguished participants of this seminar to explore more opportunities to overcome debt problems of low income countries. In addition to providing opportunities for reducing debt to international institutions, I call on the IMF and particularly the World Bank to assist in addressing bilateral debt, which poses the most acute problems for our economy. The Bank has the capacity and mandate to organize debt swaps for development together with our bilateral creditors. These are complex arrangements where we need proactive support. 

I hope that the creating new mechanisms for debt relief for low income countries could strengthen growth and competitiveness, secure a sustainable fiscal position, and underpin confidence in the financial system in line with the objectives of the economic adjustment programs that are being supported by the Bretton Woods institutions. 

Thank you for your attention.