The Times of Central Asia: newsletter of 14 May 2009

In this issue:

BISHKEK (TCA) — Tourism is considered one of the most important sectors of the Kyrgyz economy.

“Tourism promotes the development of trade, food and service industries, sports, highway and urban transport and construction,” said Turusbek Mamashov, Director of the Kyrgyz State Agency for Tourism. “Kyrgyz tourism is a reliable source of income, a facilitator of political and economic stability, a key tool for creating a positive image of the country on the international scene. However, Kyrgyzstan ’s tourism potential is not being fully exploited, as the number of tourists could be much higher.”

According to Akylbek Japarov, Minister of Economic Development and Trade, if Kyrgyzstan had all the necessary conditions, it could attract as many as two million foreign tourists and benefit from up to US $400 million-$500 million every year.

What prevents the development of tourism in Kyrgyzstan ?

“The development of tourism is hampered by a number of systemic, interrelated problems. First of all, the extent to which tourism can contribute to the socio-economic development of the country is underestimated while forecasting and

planning of the national budget. That is why, marketing and the promotion of the national tourism as a product doesn’t get enough financing, resulting in Kyrgyzstan ’s lack of popularity in the world as a tourism destination,” said Japarov.

“The State Agency for Tourism has to implement regulatory functions, ensure the realization of a unified national policy for international and domestic tourism; it represents a multisectoral body, and this industry is regulated by multiple sections of the legislative law such as: international, transport, customs, land, tax, licensing, environmental and others. It is therefore necessary to introduce a number of laws and regulations aimed at creating a favorable environment for the development of domestic and incoming tourism, and businesses in this field. Kyrgyzstan needs to introduce a law about tourism, as now it is the only CIS country which doesn’t have a law of this kind,” said Bakyt Joldoshbai uulu, Deputy Director of the State Agency for Tourism.

Kyrgyz parliamentary deputies drafted a bill ‘On tourism’, but in the process of its consideration the domestic tour operators and associations opposed this draft. They suggested that consideration of the bill in the Kyrgyz parliament be deferred until this autumn.

Heated debate arose concerning the regulatory framework. Representatives of the tourist industry believe that it is necessary to make serious changes and additions in the bill in order to make it more efficient and productive.

According to Mikhail Khalitov, chairman of the Board for Tourism and the Union of Kyrgyz Entrepreneurs, due to a consistent policy of market reforms, tourism is dominated by the private sector and entrepreneurship is the main engine of economic processes in the tourist industry. The tax policy should not therefore aggravate the situation with the financing of young companies. Most companies are not able to finance an increase in their material base with profits alone; the volume of profits is low due to the large amount of subcontracting that is needed in order to implement the programs (hotels, transportation, etc.). It is almost impossible to get a low interest credit without the help of a national investment program.

“Taking into consideration the seasonal work of many tourist objects, investment is needed first of all in construction, for the modernization and reconstruction of resorts which are designed for year-round operation. In particular, it is necessary to develop and adapt ski lodges so that they can continue to receive tourists in the summer,” said Viktor Glushenko, director of the Kashka-Suu ski lodge. “At the same time, it is necessary to develop year-round spa-treatment tourism,” he added.

“The poor condition of roads, which are the country’s main transportation arteries, negatively affect both potential investments from foreign donors and the number of incoming tourists,” said Levan Alibegashvili, deputy director of the ‘Kyrgyzdortransproekt’ design and survey institute. “And the main expense of a tourist trip is transportation costs. At the same time, flights to many areas are limited,” he said.

According to Irina Drozhzhina, the owner of the Mayak private guest house, the quality of services provided doesn’t correspond with international quality standards. For the same money, tourists can spend a vacation in Turkey , Thailand or Egypt in a five-star hotel with meals included and spa treatment, hot and cold pools and other perks.

“The lack of compulsory travel insurance especially for extreme tourists, of an accurate and complete accounting of incoming foreign tourists and of a tracking system for their itinerary is also a big concern,” said Ilshat Dautov, a rescuer. “According to official information, each year a few climbers and extreme tourists, who have come to Kyrgyzstan in order to participate in adventure tours, die,” he added.

“When it comes to mountaineering and mass foreign adventure tourism, we can not provide all of these services because of the lack of rescuers and rescue services. For Kyrgyzstan , it is a rescue service in the mountains,” said Vladimir Komissarov, Director of ITMS Tian-Shan. “In Kyrgyz mountain tourism, there is a sad trend of an increasing number of deaths among climbers. Extreme types of tourism, like mountain tourism and alpinism require special training from participants and rely on the availability of professional equipment and the necessary material and technical base of the organizers. However, often it is people who do not themselves have sufficient experience and relevant skills who are organizing the climbs. Kyrgyz mountain guides and porters are not certified according to the international standards. The Government needs to pay great attention to this extremely important problem,” said Komissarov.

Tourism is not an area of political confrontation - both local and foreign companies are partners. This discussion helped to reveal some of the problems that the developing tourist industry is confronted with, hindering its development. Today, many Europeans and Americans come here to enjoy the pristine nature, and walk along the mountain trails. Whether they will continue in the future will depend on the decisions that are made today.

2. South Korea, Uzbekistan agree cooperation projects

TASHKENT (TCA) — South Korean President Lee Myung-bak and his Uzbek counterpart Islam Karimov have concluded two days of bilateral talks in Tashkent earlier this week by signing a number of agreements on closer cooperation between the two countries. In a joint news conference, the leaders announced that they have agreed on 16 memoranda of understanding and agreements to cooperate on various projects.

South Korea will undertake a series of development projects, including financing the construction of chemical plants and a $17.6 million revamp of the sewage system in the Uzbek city of Navoi . Officials added that there will be cooperation on automobiles, IT, textiles, agriculture, and even the environment and that the two sides have agreed to strengthen and improve conditions for investments. Seoul has also promised to give US $120 million in economic aid to Tashkent and to provide support in improving medical facilities and residential areas in Uzbekistan .

In return for this and financial support for exploration projects, Korea will gain access to Uzbekistan ’s energy reserves. Five of the memoranda of understanding gave Korean companies the rights to explore and develop new oil and gas fields in the Central Asian country.

Two South Korean state-run companies will provide financial support for a project to develop the Surgil gas field in the Ustyurt region near the Aral Sea, which holds an estimated 4.7 trillion cubic feet of natural gas. Korea ’s Import-Export Bank and Korea Export Insurance Corp will provide an undisclosed amount to finance the project.

In addition to this, state-run Korea National Oil Corp (KNOC) secured sole exploration rights to two oil and gas fields in eastern Uzbekistan — the Namangan-Tergachi and Chust-Pap blocks. Preliminary research suggests that the 4,800 square kilometer area may contain around 9.2 million tons of oil.

South Korea, Asia ’s fourth-largest economy, is the world’s fifth-largest crude oil importer, buying up to 900 million barrels of crude per year, mostly from the Middle Eastern market.

President Lee Myung-bak is on a trip to energy-rich Uzbekistan and Kazakhstan from May 10-14 to secure foreign energy reserves. The South Korean leader will continue his tour of Central Asia with a visit to Kazakhstan from May 12-14 where he will discuss the construction of a thermal power plant and a joint exploration of the Zhambyl block on the coast of the Caspian Sea .

(Uznews.net, Eurasianet, Reuters, Arirang news)

3.Europe may have the pipe, but what about the gas?

PRAGUE (TCA) — European leaders have been speaking extremely positively about the progress made during last week’s “Southern Corridor – New Silk Road” summit in Prague.

The summit was supposed to end with all parties signing a final declaration, securing long-term energy and transport links between Europe and the Middle East and Central Asia, and committing signatories to sign up to a deal on the construction of the Nabucco gas pipeline running from the eastern border of Turkey to Austria by next month. However, while Azerbaijan , Egypt , Turkey and Georgia followed the script, the refusal of Kazakhstan , Turkmenistan , and Uzbekistan to sign the document has once again raised questions as to when and whether the project will be realized.

Spurred on by the Russia-Ukraine gas war, which led to more than two weeks of gas shortages in Central and Eastern European countries, and a number of other political factors including the war in Georgia, the European Union has been increasingly vocal in its support of the construction of the Nabucco pipeline.

In order to reduce reliance on gas supplies from Russia , the EU is pushing for the construction of three new pipelines in the region, which would ultimately bring natural gas from the Caspian Basin and from as far away as Iraq to Europe .

The key Nabucco pipeline would run from the eastern border of Turkey to Austria ; White Stream would run from Georgia under the Black Sea to Romania ; and the Interconnector between Turkey and Greece and Italy . Combined, all three pipelines could supply up to 10 percent of the EU’s total gas need by 2020, or some 60 billion cubic meters. Russia currently provides the EU with some 150 billion cubic meters annually, and that figure is not expected to rise significantly.

Ahead of the summit, RFE/RL’s Brussels correspondent Ahto Lobjakas noted that this is the first time that the EU has given its open backing to plans to build a trans-Caspian gas pipeline from Turkmenistan to Azerbaijan . He went on to highlight that the EU has officially given assurances to the Central Asian and South Caucasus countries that it will commit "whatever political, economic, and financial resources are necessary to the project of forging a direct link to the Caspian Sea". While this primarily concerns gas reserves, it’s "also about oil and transport".

At the end of the talks, European Commission President Jose Manuel Barroso spoke optimistically about the progress made: “Our objective was to provide a further political push for the implementation of this strategic initiative and this was indeed achieved during this very important summit."

Some advancements were indeed made. Two suppliers — Azerbaijan and Egypt — and two key transit states — Turkey and Georgia — agreed to give "the necessary political support", and, where possible, "technical and financial assistance" to the construction of the planned pipelines and transport routes needed to bring gas to the European market. The European Union, for its part, bound itself to "provide producers with reliable commitments on their aggregate demand", and to help them improve their energy efficiency.

Even if these countries can be brought on side, however, there is still the key problem of how to fill the pipes. Without a firm commitment from the Central Asian states, especially Turkmenistan , the construction of Nabucco would arguably be pointless.

Azerbaijan does not have enough to fill the pipes, as Professor Yuri Fedorov, a fellow from the London Think Tank Chatham House, noted in an interview with Deutsche Welle. “The export potential of Azerbaijan is approximately 10-15 billion cubic meters a year, which is currently exported primarily to Turkey and Georgia and there are no reasons to believe that these two countries are going to stop importing this gas.”

Furthermore, AP reported that at the end of March 2009, the Azerbaijani State company Socar was in negotiations with Russia ’s Gazprom. If a deal was reached by which Gazprom purchased all of the gas extracted by Socar, it would be an extremely detrimental blow to the Nabucco project.

Meanwhile, trade relations with energy-rich Iran , which could provide gas should Europe invest in extraction, are restricted by international sanctions.

This leaves Turkmenistan as the key supplier. As Fedorov went on to note, “In Turkmenistan , there was an announcement not long ago that an English firm had confirmed the existence of considerable untapped resources on the Southern Ioloton field, from six to ten trillion cubic meters, which is enormous. If there was to be investment now in Turkmenistan of between ten and twelve billion dollars, and the construction of a Trans-Caspian pipeline, then Turkmenistan would be able to export to Europe 25-30 billion cubic meters a year. This isn’t a lot for the Europeans, but it would be a considerable relief. It would be the diversification of imports that Europe has been talking about for a while.”

In spite of worsening relations between Russia and Turkmenistan following the dispute over a pipeline explosion in early April, Ashgabat still appears wary of the consequences of angering the Kremlin eager to maintain its virtual energy monopoly. Until Europe manages to convince Turkmenistan and its Central Asian neighbors of the safety and mutually beneficial nature of their prospective partnership, the strategic Nabucco gas pipeline will be lacking a key component – the gas.

(Lenta.ru, Kommersant, Deutsche Welle, RFE/RL)

4. Recession hits CIS in full flood

ALMATY (TCA) — The first quarter of 2009 is the first period to fully show the impact of the global crisis on the former Soviet republics. Leading economies in the region are shrinking, and to much more dramatic proportions than those in the West. With declining commodity prices, industrial production costs in most countries are down as well. But whether populations whose personal income keeps plummeting will take any solace in this remains doubtful – despite, or rather due to, the equally suspect intentions of international lending institutions.

The GDP of the CIS has contracted by a startling 11 percent over the first three months of the current year in comparison to the same period in 2008. The figure is perhaps slightly inaccurate since not all of the member states report to the organization’s agency for statistics.

That cash flow stagnation is now taking a socioeconomic toll, however, cannot be denied. Apart from net declines in GDP in the leading CIS economies and severe cut-backs in growth in others, productivity and capital provisions are on the way down and cross-border trade is seeing even greater setbacks. Worse: in most cases, the decline in exports in the first quarter on-year has been even sharper than in imports – the average CIS state keeps buying more than its purse allows.

Jobs for jobs sake

The consequences of dwindling economic activity are not far away. In Russia up to 1.8 million people lost their jobs in the first three months of 2009, bringing the number of jobless close to 10 percent of the working population, or around 7 million, Reuters reported on April 21. As for Kazakhstan , the news report quoted PM Karim Masimov as predicting up to 135,000 job losses this year, with the Government powerless to do more than mitigate this. State officials and independent critics of Kazakhstan ’s policy have been quoted in the local media as casting doubt on whether the public will be spared the pain suffered in the economic stratosphere.

In Russia and Kazakhstan , falling industrial productivity due to dwindling domestic and foreign demand has put employment and re-employment policies in a deadlock, leaving no other option than to use money from the public treasury to support jobs for jobs sake with no overall economic justification for them. This also blocks entry onto labour markets for newcomers, disrupting the natural flow of labour forces according to need and opportunity.

Back to hard value

The worst of it seems to be that the Russian economy, considered the engine that keeps the entire conglomerate running, has been hit harder than any other former Soviet republic. With an overall economic contraction of 12.3 percent on-year, and even stronger regression in terms of industrial output and investment inflow (see table), Russia towers over other loss-making CIS member states.

Russia, though, has a certain amount of cash ready to respond to the drain, keeping enough back for another rainy day; most of the other former Soviet republics can only wait to see what happens when it pours. Thus, Russia ’s industrial output in the first quarter of 2009 amounted to 4.5 trillion Russian roubles – a net loss of 14.3 percent or 514 billion roubles, approximately 32,150 roubles per head of the population, compared to the same period in 2008. By contrast, Kazakhstan ’s industrial output dropped within the same time frame to 1.6 trillion tenge – 100,000 tenge per capita, which is the equivalent of 22,000 roubles. In most other CIS countries, the difference is even larger.

It is not the first blow to Russia ’s economy. In the wake of the financial implosion back in August 1998, when high-flying extreme-risk paper which had been circulating almost without any limits all of a sudden became stripped of its speculative surplus value and left over a million families in Russia and elsewhere in the former Soviet Union, according to later estimates, in part or entirely bankrupt. What was a correction then, bringing assets back to hard value but not much below that, has now become a dip well below the zero-axis, which makes the scene for recovery much more difficult to set than it was done back in the late 1990s.

‘A range of adverse factors’

The overall indicators for the former Soviet republics in the first quarter, as well as their Governments’ forecasts for the rest of the world belie projections as presented in the April update on world economic development by the International Monetary Fund. The report’s authors see a turn around as soon as the upcoming year, predicting that economies in the CIS will witness a modest on-year growth once more. Their argument is that the current crisis is more psychological in character than material – given expressions as “aversion” and “desire” as the main anti-incentives among investors and buyers, thereby putting downward pressure on supplies and productivity.

“The broad retrenchment of foreign investors and banks from emerging economies and the resulting buildup in funding pressures are particularly worrying,” the IMF report reads. “New securities issues have come to a virtual stop, bank-related flows have been curtailed, bond spreads have soared, equity prices have dropped, and exchange markets have come under heavy pressure. Beyond a general rise in risk aversion, this reflects a range of adverse factors, including the damage done to advanced economy banks and hedge funds, the desire to move funds under the ‘umbrella’ provided by the increasing provision of guarantees in mature markets, and rising concerns about the economic prospects and vulnerabilities of emerging economies.”

‘Coordination and collaboration’

This observation is hardly new. But the IMF’s officials also hardly make it a secret that they want to be in business. “The critical underpinning of an enduring solution must be credible loss recognition on impaired assets,” its report continues. “To that effect, governments need to establish common basic methodologies for the realistic valuation of securitised credit instruments, which should be based on expected economic conditions and an attempt to estimate the value of future income streams. Recapitalization methods must be rooted in a careful evaluation of the long-term viability of institutions, taking into account both losses to date and a realistic assessment of the prospects of further write downs. Greater international cooperation is needed to avoid exacerbating cross-border strains. Coordination and collaboration is particularly important with respect to financial policies to avoid adverse international spillovers from national actions. At the same time, international support, including from the IMF, can help countries buffer the impact of the financial crisis on real activity and, particularly in the developing countries, limit its effects on poverty. Recent reforms to increase the flexibility of lending instruments for good performers caught in bad weather, together with plans advanced by the G-20 summit to increase the resources available to the IMF, are enhancing the capacity of the international financial community to address risks related to sudden stops of private capital flows.”

Dubbed neo-colonialism

The worst is that what the authors of the IMF update recommend looks pretty poor in terms of perception – let along imagination – and is therefore unlikely to achieve more than cosmetic plasterwork and leaves the roots of the current problem untouched. Institutions like the IMF saw their chance in the wake of the political shift in the process of decolonisation after the Second World War. Their financial injections were meant to replace those of the colonial powers and their private enterprise and keep newly independent states dependent on the markets controlled by their former colonial masters and the new member of the club, America . The policy pursued by rich countries at the time used to be dubbed neo-colonialism by critics. There can be little doubt that the preservation of that status-quo is the IMF’s main motive for its attempts to “limit effects on poverty”. The expression used here precisely betrays the officials’ true intention: to keep the emerging economies emerging without allowing them to emerge. As David Ricardo put it pretty quaintly well over two centuries ago: help to the poor is the way to keep them as poor as they are.

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