Central Asia Steps out of the Shadows

By Field, Graham | Global Finance, January 2002 | Go to article overview

Central Asia Steps out of the Shadows


Field, Graham, Global Finance


CENTRAL ASIAN REPUBLICS

HOPES REVIVED

Five Central Asian republics are hoping for a payoff from the Afghan war. They may have to wait longer than they hope.

The borders of the five Central Asian republics-Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan-are among the last frontiers for Western investors to cross. An inhospitable landscape, civil conflicts, authoritarian governments, and the threat of Islamic fundamentalism have kept most investors at a distance. The recent events in Afghanistan have left Central Asia squarely in the spotlight.

The conflict in Afghanistan-to the south of the "Stans," as the five states are collectively known-has focused attention on what was once a dusty backwater.There are signs that cooperation with the West may already be paying dividends. At the end of November the IMF doled out $93 million in a three-year Poverty Reduction and Growth Facility for Kyrgyzstan. A senior Uzbek delegation that visited Washington at the same time came away with $100 million in aid pledges and another $50 million in credits from the US Export-Import Bank.

And with the Afghan impasse broken, there are renewed hopes for oil pipeline developments that will be of vital importance for these landlocked states.

Stans Look to the West

The healthy glow of Western support for the Central Asian republics isn't just a payback for military assistance-- immensely helpful as that has been to the US-led war against terror. It also reflects the steps some of the Stars have been making to modernize their economies.

Remaking an economy is no easy task after decades within the Soviet Union. During that era, for instance, Uzbekistan was allocated the task of producing cotton to help supply the whole centrally planned system. Now, 10 years after the demise of the Soviet Union, the region's economies are only slowly reorienting toward the West.

Walter White, a partner at London law firm Bryan Cave and former chair of the Central Asian American Enterprise Fund, says Kyrgyzstan has been the leader in"moving rapidly to create a modern legal framework for business." Kyrgyzstan (officially the Kyrgyz Republic) was the first of the Central Asian republics to join the World Trade Organization, back in 1998. Its agreement with the IMF commits it to privatizing the large state monopolies by 2005.

Kazakhstan, too, has been moving in the direction of a market-friendly economic environment, and it has what most observers see as a sustainable policy regime. "If President [Nursultan] Nazarbayev were to step down, it would not be a problem to find someone to replace him who shares his vision of development-which is not the case with the other republics," says Jonathan Schiffer, lead analyst at Moody's Investors Service for the Commonwealth of Independent States. The agency upped Kazakhstan's foreign currency rating to Ba2 from Bl in June 2001.

A Wealth of Natural Resources

The country's dynamic state-led development policy puts Kazakhstan at an advantage over Turkmenistan, Tajikistan, and Uzbekistan. But what places it head and shoulders above the other countries in the region is its abundance of natural resources-combined with the fact that it is in earnest about cooperating with the West in developing their potential. Kazakhstan is the world's leading producer of barite, lead, and wolfram and second-largest of zinc and silver. It also has 8% of the world's iron ore resources.

The jewel in the Kazakh crown is oil and gas reserves. The discovery of the huge Karachaganak oil deposit in the Caspian Sea means that by the end of the decade Kazakhstan could be producing as much oil as SaudiArabia. Even before the Karachaganak discovery Kazakhstan already had nearly 3% of global oil reserves and around 70 trillion cubic feet of natural gas.

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