Financial crisis halts Central Asia’s economic boom

BISHKEK, Kyrgyzstan — Maksat Bolotbekov crouched down, rubbed his blackened hands and caught the last waves of warmth from the fire’s grey ashes. Across the street the darkened windows of a Soviet-era munitions factory stared out blankly, coldly.

Bolotbekov, 37, is a construction worker.  He and 10 of his comrades gather daily on the side of Lev Tolstoy Street, in the center of this small ex-Soviet republic’s capital, waiting for someone to come by and offer them part-time work. In good times they earn about $600 a month, they say.

Lately, the jobs have become more scarce. Bolotbekov used to work as a guest laborer in next-door Kazakhstan, but when construction projects halted there nearly a year ago, he returned home. Now, he says, he makes less than half of what he used to.

“I now work for one day, and then do nothing for three or four,” Bolotbekov said, on a recent frigid December day.

This scene on the side of Lev Tolstoy road offers a lesson at this moment in history: There is no corner of the globe so remote that it has not felt the reverberations from the international financial crisis. Though Kyrgyzstan is a small blip on the world’s monetary radar, it, too, has felt the economic crunch, which may grow even more painful in the coming months.

Migrant workers like Bolotbekov are more than just breadwinners in Central Asia — they are in many cases responsible for keeping their countries’ economies afloat. About 800,000 residents of Kyrgyzstan — one third of the labor force — work abroad, mostly in Kazakhstan and Russia. Up to 30 percent of Kyrgyzstan’s gross domestic product may come from remittances. In neighboring Tajikistan the figure is even higher: 50 percent of the country’s economy is made up of money sent from outside the country.

So you can hear the sound of the falling dominoes. When the shocks from the subprime crisis began to be felt one year ago, they struck Kazakhstan first. Banks there were riding high from an oil boom — the country will become one of the world’s top 10 oil producers in the next decade — and borrowed extensively, using the future oil profits as collateral. Suddenly the European banks that had been so generous cut off their lines of credit.

The Kazakhstan banks in turn stopped issuing their own loans, and the country’s housing and real estate market — which were booming thanks to the easy money — evaporated. The hum of the Kazakh economic engine, which until then was one of the driving forces of growth throughout Central Asia, suddenly softened.

Then in September and October of this year Russia and Kazakhstan, which are closely tied to international monetary systems, were buffeted sharply. Adding insult to injury was the precipitous drop in oil prices, which cut deeply into the countries’ revenues. Construction projects were put on hold, and untold numbers of workers, many from Central Asia, were laid off.

In Kazakhstan, which had been one of the world’s most promising emerging markets, growth may drop to three percent this year after an extended period of around 10 percent per annum. A palpable economic funk has enveloped the Kazakh commercial center of Almaty. The government revealed last month a $21 billion bailout plan — 20 percent of GDP — including a partial nationalization of banks. This month, officials also announced that they would seek to restructure a portion of some $40 billion in foreign debt owed by Kazakhstan banks.

The country will survive financially, analysts say, albeit a bit more bruised. Kazakhstan has enormous currency reserves, thanks to recent oil windfalls, and the crisis will eventually pass.

But Kyrgyzstan, a small nation of about 5 million inhabitants next to the Chinese border, may not be so lucky. The country has a minuscule economy and few sources of revenue. Kazakhstan banks had invested heavily in Kyrgyzstan’s economy, but have now cut back sharply. The International Monetary Fund in recognition of the growing crisis and a looming winter energy shortage, opened a $100 million emergency fund this month for the country.

The economic plight is mirrored in next-door Tajikistan, with an equally anemic economy, and to a lesser extent in Uzbekistan. Muddying the picture is the fact that reliable figures over exactly how much these economies have suffered are hard to come by. Nevertheless Akylbek Japarov, Kyrgyzstan’s Economic Development and Trade Minister, said recently that a drop in remittances has already been felt.

The risk, analysts say, is if large numbers of young, working-age men begin to return home, only to discover an even bleaker job environment than the ones they left in Russia or Kazakhstan. The scene on Lev Tolstoy Street notwithstanding, they have not yet returned in large numbers. This may change by the spring, however, if the worldwide economic recession deepens.

“The thing is, emigration is a political and social release valve,” said one western official in Bishkek who preferred to speak off the record. “What the government should be worried about is a lot of young, unhappy, unemployed men coming back with nothing to do.”