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C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000680 
 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: DECL: 07/01/2018 
TAGS: PGOV PREL ECON KG
SUBJECT: KYRGYZ GOVERNMENT TURNS TO "EXPERTS" FOR ACTION ON 
ECONOMY 
 
REF: BISHKEK 593 
 
BISHKEK 00000680  001.2 OF 002 
 
 
Classified By: Amb. Marie L. Yovanovitch, Reasons 1.4 (b) and (d). 
 
¶1. (C) Summary:  Faced with rising inflation, a growing 
budget shortfall, and possible energy shortages, the Kyrgyz 
government has formed three "experts" groups to develop plans 
for preventing an economic crisis in the country.  According 
to an administration advisor, government ministries are not 
prepared to deal with a problem of this scale, and the three 
groups have been tasked to come up with ideas on taxes, 
expenditures, and external loans and financing that will have 
an immediate impact.  The advisor raised concerns about 
possible spontaneous social unrest or demonstrations in the 
autumn among groups, such as pensioners and transportation 
workers, most severely affected by the economic situation. 
End Summary. 
 
¶2. (C) An advisor to the presidential administration, 
Valentin Bogatyrev, told the Ambassador June 25 that the 
Kyrgyz government was not prepared to deal with the looming 
economic crisis.  Even with inflation up to 25%, a growing 
budget shortfall of up to $250 million, and possible energy 
shortages, many in the government still do not grasp the 
scope and immediacy of the problem, according to Bogatyrev. 
He said that the government has briefed President Bakiyev on 
the need for "belt tightening," but neither the Ministry of 
Finance nor the Ministry of Economic Development and Trade 
has come up with specific ideas about what to do. 
 
¶3. (C) According to Bogatyrev, it will take at least a year 
for the government's "new economic program" (announced in 
January, with the goal of improving the business climate) to 
have an impact, and administration officials are concerned 
this fall and winter will be difficult.  Given the lack of 
ideas from inside the government, Bogatyrev said, the 
administration has formed three groups of "experts" that have 
been tasked with developing a serious "anti-crisis" plan.  He 
explained that one group will focus on tax issues, and a 
second will concentrate on expenditure and fiscal issues. 
The third group will look at the situation as a whole, and in 
one week the groups were scheduled to come together and 
prepare official recommendations.  The "experts" include 
people from inside government, such as the Prime Minister's 
Chief of Staff Murat Ismailov, as well as outsiders, such as 
UNDP advisor Leonid Komarov and Ulan Sarbanov, a former 
chairman of the central bank and USAID advisor (who had been 
on the outs with the administration for the past three 
years).  Bogatyrev's opinion of his fellow experts was not 
high. 
 
¶4. (C) Among the measures to be considered will be steps to 
reduce government expenditures, securing revenues from 
privatization of certain assets, and improvements to business 
conditions that would increase tax revenues.  The groups will 
also examine external financing options.  Bogatyrev said that 
the administration now favored continuation of Kyrgyzstan's 
IMF program.  (Note:  Kyrgyzstan's most recent IMF program 
concluded in May.  Separately, IMF representatives informed 
us on June 27 that the Kyrgyz government has agreed to a new 
three-year IMF program, but the details remain to be worked 
out.  End Note.) 
 
¶5. (C) Bogatyrev said that if the economic situation 
continued to deteriorate, there was a possibility of protests 
in the autumn.  The political opposition would try to exploit 
the situation, but he dismissed the opposition's ability to 
organize or lead such protests, as they are weak and divided. 
 Nevertheless, the chance of unrest would be real if the 
government did not find a way to get support to the groups 
adversely affected by falling living standards.  He said that 
pensioners and transportation workers, for example, were 
already being squeezed by inflation and rising fuel prices, 
 
BISHKEK 00000680  002.2 OF 002 
 
 
and they might organize local protests (as already had 
occurred in a couple of instances).  He said that these kinds 
of spontaneous demonstrations were much more dangerous to the 
public order than opposition-led demonstrations because 
"there is on one in charge and no one to negotiate with." 
 
¶6. (C) Comment:  While Bogatyrev does not have an official 
position within the administration, he has been a reliable 
reporter of administration thinking and plans.  Bogatyrev's 
pessimism about Kyrgyzstan's economic future and the 
government's ability to deal with it stands in stark contrast 
to his previous, more measured view.  As we have noted 
(reftel), the economic situation -- growing inflation, budget 
shortfalls, and water shortages -- threatens to overwhelm the 
government's ability to craft a comprehensive strategy.  We 
are working with other donors to identify how we can help the 
government address these multiple challenges. 
YOVANOVITCH