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Kyrgyzstan: Prices, Monetary Policy, and Debt
Country Study > Chapter 8 > The Economy > Prices, Monetary Policy, and Debt

PRICES, MONETARY POLICY, AND DEBT


Kyrgyzstan paid dearly for its designated role as an exporter of raw materials when the Soviet Union unraveled and retail prices began to be freed: the prices paid for raw materials rose much more slowly than did prices of finished goods. Thus, in 1992, for example, the cost of what Kyrgyzstan imported rose by fifty to 100 times, while the amounts received for exports rose by fifteen to twenty times. This explains in part why the GNP for 1992 was valued at 250 billion rubles (for value of the ruble -- see Glossary), while the cost of Kyrgyzstan's imports was put at 400 billion rubles. In 1992 Russia began discounting the paper value of the Kyrgyzstan ruble, effectively devaluing the goods that Kyrgyzstan was supplying. Moscow then required that the country assume the imposed "difference" as a loan, which had the effect of increasing Kyrgyzstan's debt burden.

To escape the disparities inherent in dependence on the ruble, in May 1993 Kyrgyzstan was the first former Soviet republic to leave the ruble zone and introduce its own currency, the som. This new policy earned Kyrgyzstan the hostility of neighboring Kazakhstan and Uzbekistan, which had declared loyalty to the ruble and feared an avalanche of devalued Kyrgyzstani rubles entering their countries. The som, which is fully convertible to foreign currency and has a floating exchange rate, has been underwritten largely by the IMF, which has provided a large measure of stability. After introduction at a rate of two som to the United States dollar, the som traded at eleven to the dollar at the end of 1995. According to President Akayev, about half the som in circulation are backed by gold or by international loans. Although the som has received strong international backing, experts questioned the likelihood that such support would continue once other new national currencies emerged in former Soviet republics, eliminating the som's status as a unique experiment. Such doubt grew clear as Kyrgyzstan's first international loans came due in 1995, with scheduled payments of approximately US$58 million that year, rising to nearly US$100 million the next year. The republic's collapsed economy made it possible that Kyrgyzstan would become a permanent international client state.

Especially in the first year of independence, hyperinflation seriously eroded buying power; the government's inflation target for 1995, set in cooperation with the IMF, was 55 percent, with monthly declines throughout the year. Prices rose by 16 percent in the first quarter of 1995, slightly above target, but budgetary expenditures for the first half of the year were far above the IMF target of 5 percent of GDP.

In the spring of 1995, average monthly pay in Kyrgyzstan was 508 som, compared with a government-estimated minimum family budget of 487 som. Earning statistics are not considered totally reliable, however. In 1995 food required an average of 61 percent of the family budget. To eliminate price distortions inherited from price support policies of the Soviet regime, the Akayev government decontrolled most prices in 1992, which had the immediate result of fueling inflation and reducing individual purchasing power. The economic decline of 1993 caused reintroduction of price controls, notably on agricultural products, and ceilings of 10 to 25 percent were placed on price increases for a wide range of retail commodities. The state Anti-Monopoly and Pricing Committee restricted pricing decisions in most of Kyrgyzstan's large enterprises. Although such institutional mechanisms did not work consistently, they encouraged development of unofficial economic arrangements and barter arrangements, which further undermined the national economy. In 1994 the government again reversed its policy, ending obligatory sale and price controls on agricultural goods that had depressed the agricultural market. The reform would nominally free farmers to negotiate commodity prices with government agencies and other buyers. However, because the government remained the only large-scale purchaser of many products, liberalizing the procurement process was not expected to have immediate effects.

Data as of March 1996




Last Updated: March 1996


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Kyrgyzstan was first published in 1996. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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