Kyrgyzstan Bank Received EBRD Financing

by Gordon Feller

To help ensure the success of the first foreign-owned commercial bank in Kyrgyzstan, the European Bank for Reconstruction and Development (EBRD) is subscribing an initial equity investment of U.S. $300,000 (ECU240,000) to the newly established Demirkyrgyz International Bank (DIB). The new bank will provide a full range of banking services, with a focus on international payments and trade financing services.

The principal shareholder and sponsor of DIB is Demirbank (DMB), a commercial bank established under Turkish law, which will hold an initial 60 percent of the new bank’s authorized ordinary shares.

Alongside DMB and the EBRD, the International Finance Corporation is taking 15 percent and FMO, the Netherlands Development Bank, will own the remaining 10 percent.

Tajikistan Inflation Slows

The Tajik ruble, first introduced in May 1995, fared better in its second year than in its first. High inflation has slowed dramatically, thanks to Tajikistan’s adherence to IMF recommendations. The exchange rate for cash rubles against the dollar has held at 290-300 since November 1995, but there is a black market rate of 440 per dollar for non-cash rubles. The TRis widely used throughout the country, although Russian rubles are preferred in regions with higher levels of trade with neighboring countries.

Two Steps Backward in Uzbekistan

After five years of efforts by many Central Asian countries to make their currencies more convertible, Uzbekistan has surprised financial experts by tightly limiting the exchange of its currency into dollars.

Tashkent last month passed a decree restricting the number of banks where Uzbek citizens and foreign companies can convert the som into hard currency from 14 banks to two. Correspondents say that the decree has left both small and large companies able to obtain legally only a fraction of the hard currency they previously used for trade within the region and abroad.

Analysts say the decision to cut off most legal private access to hard currency may be related to recent setbacks in the state- controlled agricultural sector which are putting a strain on the government’s hard currency reserves.

Uzbekistan’s principal export commodity, cotton, produced a lower-than-expected harvest this year, threatening the government with a shortfall in hard currency income. At the same time, Uzbekistan’s wheat harvestneeded to feed the countryhas fallen short for the second year in a row, forcing Tashkent to spend more hard currency on buying wheat abroad.

Development experts speaking on condition of anonymity in Washington, DC, call Tashkent’s decision mistaken. They say that other countries with developing markets have tried tighter currency restrictions to control economic developments, but that the strategy shows a poor understanding of—and too little faith in—the ability of free-market measures to solve problems. They also say that it is extremely rare for a country which has already begun liberalizing its currency exchange—as Uzbekistan hadto suddenly reverse direction.

Uzbekistan’s new exchange rules now make it, along with Turkmenistan and Tajikistan, one of the most conservative Central Asian countries in regard to monetary policies. Turkmenistan favors a policy of delaying progress toward a convertible currency until its still largely unexploited natural resources begin attracting hard currency income. Tajikistan, with an economy damaged by civil war, still has too little foreign currency to speak of an exchange market.

But Kazakstan and Kyrgyzstan remain committed to making their currencies freely convertible. Kazakstan, which has already attracted large-scale foreign investment, signed an agreement with the International Monetary Fund (IMF) last year to refrain from imposing restrictions on hard-currency transactions. Kyrgyzstan did the same this summer. The IMF considers liberal currency exchange practices essential for promoting the growth of world trade.

Some Down; Production Up

Many analysts watching the stability of Central Asia’s politics and economies have concluded that the vital link in the chain of events is the future of Kyrgyzstan, in part because it has been the most aggressive in promoting a combination of political and economic reforms. Kyrgyzstan’s potential successor failure will be taken as a key indicator by the other states in the neighborhood of their own prospects for the future.

The Kyrgyz National Statistics Committee recently released economic indicators for the first 10 months of 1996. The figures show an increase both in GDP and industrial output. The monthly inflation rates in September and October were low. This year’s grain harvest is much higher than in 1995. While the budget deficit/GDP ration is kept manageable, the Kyrgyz somcontinues to depreciate significantly against the U.S. dollar.

In the first 10 months of 1996, industrial output showed a notable increase 11 percent over the same period of last year. Consumer goods production was 20 percent higher, food production was up 27 percent. However, 42 food processing facilities were idle.

Georgia-Azerbaijan Container Express

Georgia and Azerbaijan started implementation of a pilot project to provide for the transportation of container shipments between the Georgian Black Sea port of Poti and Baku. The first train from Baku arrived in Poti Nov. 11. The “Transcaucasus Logistics Express” will transport container shipments from Baku to Poti according to a fixed schedule (including a one-hour stop in Tbilisi and two-hour stop on the Georgian-Azeri border). The management of “Transcaucasus Logistics Service,” which will operate the train, believes that its rates will be competitive with alternative means of transport (specifically with road transport).

By agreement between the two countries, the train will have priority over other passenger and cargo trains. The management of “Transcaucasus Logistics Service” claims that in the future, total transportation time will not exceed 30 hours.

Railway Bridge Links Armenia, Georgia

A ceremony to mark the reopening of the Banusha railway bridge took place Nov. 4. Banusha bridge is located 67 kilometers from Tbilisi and 9 kilometers from the Armenian border. It is now the only rail link to Armenia.

The total cost of restoring the bridge was $900,000. Financing was provided by the Georgian government ($115,000) and by various donor countries including Great Britain ($300,000), Switzerland ($168,000), and Germany ($80,000). The bridge was restored under terms of an agreement signed by the U.N. World Food Program and the Georgian railway department.

U.S. Freight Firm Operating in Georgia

A new investor, the U.S. company Transoceanic, has appeared on the Georgian market. The shipping company plans to enter into a joint venture with the Georgian International Oil Corporation (GIOC), with the aim of developing the existing berths and warehouse facilities in the Georgian ports of Batumi and Poti and to transport freight to Azerbaijan.

Earlier in 1996 Transoceanic transported 50,000 metric tons of oil pipe through Georgian territory to Azerbaijan for use in pipeline construction.

Iran Restructures Georgia’s Debt

First Deputy President of Iran Hasan Habibi arrived in Georgia Nov. 2. to meet with President Eduard Shevardnadze and other key Georgian officials. The two countries signed an agreement to avoid double taxation, a memorandum of cooperation on customs services, and documents pertaining to the restructuring of Georgia’s debt to Iran for natural gas supplies.

According to the debt restructuring agreement, Georgia will repay its $13 million debt to Iran over the next 10 years at an interest rate of 4 percent. Georgia will enjoy a five-year grace period during which it will pay only interest. Habibi also visited the Black Sea port of Batumi on Nov. 3 to acquaint himself with its commercial potential. Habibi expressed interest in the transportation of Iranian goods to Europe and Russia via Georgian Black Sea ports. He said Iran may assist in the rehabilitation of the Tbilisi-Poti-Batumi road. Habibi also discussed the transportation of Iranian electricity and natural gas to Georgia via Armenia.