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Kyrgyzstan Rushes into Moscow’s Economic Embrace

Kyrgyzstan’s Russia-friendly government is getting closer to the point of no return. 

Two weeks after Russian Prime Minister Vladimir Putin launched his proposal for a new Eurasian Union based on the Moscow-led Customs Union with Belarus and Kazakhstan, Kyrgyzstan has taken another step toward accession with the formation of a working group to resolve outstanding issues. 

On October 17, Acting Prime Minister Omurbek Babanov, a Customs Union supporter, noted that Kyrgyzstan still had some issues to work out before joining. Among the problems Babanov mentioned is “finding work for the tens or hundreds of thousands of people who will be left jobless when we enter the Customs Union.” 

One might think losing so many jobs would be a big enough concern to rule out accession for a country with widespread unemployment and an economy that shrank in 2010

But wishful thinking is all the rage. The leading presidential candidate in next week’s elections, Almazbek Atambayev (Babanov’s boss and for all intents and purposes the man who stands to gain the most from a quid pro quo with Moscow), has promised the Customs Union will contribute to “the development of manufacturing.” 

How that could be is unclear. Kyrgyzstan’s legal economy (that is, not counting the drugs) is deeply dependent on the transit of cheap Chinese goods thanks to Kyrgyzstan’s World Trade Organization (WTO) membership. Most of these goods are marked up and re-exported to Kazakhstan and Russia (although this practice has been hurt by the Customs Union), while others keep the cost of living lower for local customers. 

Joining the Customs Union will eliminate Kyrgyzstan’s Chinese import advantage, increasing prices and destroying jobs, while freed capital will relocate closer to wealthier customers in Russia, observers warn. It is also unclear how Kyrgyzstan would reconcile WTO membership rules with Customs Union membership, and if it would have to quit the international body altogether.

(Eight CIS countries including Kyrgyzstan also inked a less comprehensive free trade agreement October 18. CIS agreements are often worth more on paper than in practice, and the full agreement has not been released, so the deal’s impact is still unknown.)

Of course, Kyrgyzstan’s politicians are not known for paying much heed to economic logic, and populist reminders of the “good old days” still play well with voters. Right now it appears Kyrgyzstan is preparing for a massive self-inflicted wound. 

Kyrgyzstan Rushes into Moscow’s Economic Embrace

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