Kyrgyzstan's government reforms have pro-business agenda

By bne IntelliNews November 24, 2009

Clare Nuttall in Almaty -

Kyrgyzstan President Kurmanbek Bakiyev has launched large-scale reforms to streamline the country's cumbersome public administration. The changes will make it easier to introduce pro-business measures, but they have drawn criticism from the opposition, which says they are designed to boost Bakiyev's personal power base.

The two key appointments are of businessman and former presidential chief of staff Daniyar Usenov as prime minister, and the president's younger son Maxim Bakiyev as head of the Central Agency for Development, Investment and Innovation. The newly created agency will play a crucial role in setting economic strategy.

The number of government sector workers will be slashed, with 40% of employees losing their posts. This will save more than $11m a year, and has been widely welcomed since the state apparatus has long been criticised for being bureaucratic and inefficient. Local news agency quotes parliament member Bakyt Torobaev as saying that those set to lose their jobs, "will mainly be those who take duplicate posts and push a pen in office." The government has said it will retrain them for jobs in other sectors.

Good for business

Reform of the presidential office is at the top of the agenda. "The first step in the reform of the authority lies through a reform of the institute of the president," Bakiyev said when he first announced the reform programme on October 20.

The Institute of the President, which replaces the presidential staff, will comprise the presidential office, state advisors on defense, security, law and order, a state minister for foreign affairs and the central agency for development and investment. The president, parliamentary speaker, prime minister, and state minister for foreign affairs will become permanent members of the President's Conference. "The president will make all strategic decisions on foreign and domestic policy following a discussion with the Conference," Bakiyev said.

Opposition figures complain the reforms are primarily intended to strengthen the office of the presidency, and thus Bakiyev's personal powers. The appointment of his 32-year-old son to head the new agency is believed to be a sign that he is grooming Maxim Bakiyev - already an influential figure behind the scenes - as his successor.

However, the changes are also expected to have positive consequences for the business environment in Kyrgyzstan. "People have described these as the most radical reforms since independence," says Seyitbek Usmanov, head of research at MGN Capital. "Everyone knows the government should have been more proactive in pushing economic reforms, so although there has been some criticism of the president, in general people welcome the plans to streamline the government. They are seen as bringing economic reform to the forefront of the presidential agenda."

Usenov, who took over as prime minister after Igor Chudinov's resignation, previously served as presidential chief of staff, first deputy PM and the mayor of Bishkek. He is also well known for his business ventures, which include a housing construction project in the Bishkek region and a resort in Issyk-Kul. MGN's Usmanov describes Usenov as "one of the most successful, daring and innovative businessmen" in the country. "I believe the president hopes Usenov will bring his business experience to help reform government processes," he says.

The aim of the Central Agency for Development, Investment and Innovation will be to maintain the rapid economic growth achieved in recent years. In addition to Maxim Bakiyev, who holds the top post, the management team includes Azamat Diykambaev and Uchkun Tashbaev, two economists who are credited with raising Kyrgyzstan's ranking on the World Bank's "Doing Business" index. "The agency reports directly to the president. Previously, economic development efforts were carried out within the Economic Development Ministry and various other ministries. Now they are being managed at a much higher level," says Usmanov. "The agency is part of the presidential apparatus, and can carry out reforms much more quickly, which is important."

Kyrgyzstan's $300m Development Fund will report to the agency, and will be involved in carrying out investment projects on a public-private partnership basis. The fund's board includes former International Monetary Fund representative to Kyrgyzstan Michael Mered and Oleg Osipenko, a former vice-president at Morgan Stanley.

The agency has four main projects on its agenda, which are intended to benefit the population, especially in rural areas. It will increase lending in rural sectors of the economy by setting up a micro-finance company. A second company will be set up to purchase agricultural goods from farmers. Leasing, which is very under-developed in Kyrgyzstan, will be encouraged. The agency will also launch an affordable housing project. All the programmes will be jointly developed in partnership with the private sector.

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