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Central Asia - Back on the Frontlines?

By Scott B. MacDonald

Initially the focus of an interested outside world in the early 1990s, Central Asia faded as a point of attention by late in the decade. Many foreign investors walked away frustrated by a slow approach to economic reform and the opaque nature of government, while geo-political risks associated with Afghanistan and the emergence of radical Islamic groups overshadowed the region, helping make it a dangerous, off-the-beaten track backwater. In a sense, by 1998 Central Asia had become part of a new "Great Game" of power and influence, where only the most daring of investors and companies ventured. The events of 9/11, however, changed Central Asia’s geo-political role. No longer a distant point on the map where the major newspapers and TV networks did not think of sending correspondents, Uzbekistan, Turkmenistan and Tajikistan are now filled with journalists, seeking to be on the cutting-edge of "discovering" Central Asia.

Despite this sudden interest by the Western media, Central Asia has long been "discovered", and during the 1990s it underwent substantial changes. Central Asia’s experience since being suddenly thrust into independence in 1992 has been one of often-extreme volatility. Long part of the command economy of the Soviet Union, the republics of Kazakhstan, Kyrgyzia, Tajikistan, Turkmenistan and Uzbekistan were hardly prepared for statehood. Greatly complicating matters was that the old system of command economics was badly discredited, yet the existence of an elite with the necessary skill sets to implement and manage a market economy were sparse. Independence also entailed a new exposure and vulnerability to changes in international commodity prices, the ups and downs of far away markets, and the fickleness of international investors. While Central Asia held considerable promise in terms of vast natural resources, the inability to rapidly transform the Soviet era political economy into a market-friendly system resulted in disappointed national aspirations, frustrated foreign investors, and skeptical multi-lending agencies.

When the Asian economic crisis hit in 1997, followed by the contagion in Russia in 1998, Central Asia appeared to have hit the bottom. If foreign investors were skittish about Russia, there had absolutely no appetite for Tajikistan, Uzbekistan or Turkmenistan. The Central Asian republics were far away, heavily dependent on commodity exports, lacked direct access to the sea, generally had political problems (including Islamic radicals), and were caught up in the geo-political game of influence played out by Russia, China, Turkey and Iran. It did not help these countries that Uzbekistan, Turkmenistan and Tajikistan shared borders with Afghanistan, then under the Taliban, who were actively engaged in helping Islamic radicals to seek the overthrow of its neighbors’ governments. In addition to geo-political concerns, Central Asian countries had trouble creating some of the key support structures for market economies, including working legal systems, transparency and disclosure in financial transactions, as well as soft infrastructure (defined as personal safety, adequate communications, personal transportation and hotels up to international standards).

Yet, Central Asia was not ready to be written off. Despite its label as "the Wild East", each of the republics gradually began to develop a sense of local nationalism, while the secular nature of the state was reinforced. At the same time, there was a growing awareness of the rough-and-tumble nature of global politics and economics. Reform efforts in Kazakhstan and the Kyrgyz Republic began to improve economic performance. Moreover, the uptick in international oil prices in 1999 and 2000 provided a tide of hydrocarbon profits that helped to lift the economies of Turkmenistan and Uzbekistan. Kazakhstan even used the oil and natural gas windfall to establish an oil stabilization fund. Real GDP growth throughout the region shot upwards from 1998 through 2001. Kazakhstan had real GDP growth of 2.8% in 1999, followed by 9.5% in 2000, with 6% expected for this year. Turkmenistan is expected to record 10% growth for 2001, with Tajikistan and Kyrgyz Republic coming in around 5% each and Uzbekistan with approximately 3% growth.

The oil boom, however, did not extend to all Central Asian republics. Tajikistan and Kyrgyzia lack the oil wealth of Uzbekistan, Turkmenistan and Kazakhstan. Tajikistan is still recovering from the civil wars that hit shortly after independence. Tajikistan also has a heavy debt burden, which the IMF estimated at 129% of GDP in early 2001, with a debt service ratio of 44%, "leaving little room for pursuing measures to alleviate poverty." In Kyrgyzia, poverty alleviation is equally pressing. An IMF study indicates that more than half of the country’s population is poor and nearly a quarter of the population lives in extreme poverty.

The War on Terrorism and the enhanced role of the United States and Europe in Central Asia, however, has once again changed the geo-political situation for the Central Asian republics. Most of the governments are aware that there is a pressing need to maintain prudent macroeconomic policies, increase the pace of privatization, continue with trade liberalization and other structural reforms. Yet, there will be a temptation to sell base rights to the United States and harvest extra funds from the West for their assistance in the war against the Taliban in Afghanistan instead of furthering the process of reform. This will not help to promote economic growth over the long term. Moreover, oil prices are going to be lower in 2002. This will dampen growth prospects for Uzbekistan, Kazakhstan and Turkmenistan.
Central Asia’s importance will not decline as rapidly this time as the last. As Afghanistan moves into its post-Taliban phase, the region will remain a critical jumping off point for Western aid and support. Moreover, a post-Taliban Afghanistan is going to need to restore trade ties and rebuild its devastated economy. In this its Central Asian neighbors are essential.

French authority on Islam, Olivier Roy has noted political Islam has been stimulated by such things as poverty, uprootedness, crises in values and identities and decay of educational systems. These socio-economic realities are alive and well in Central Asia. They have already given birth to radical Islamist groups, seeking to overthrow the old order. They have gained supporters in the face of official corruption, ethnic and tribal segmentation, and personal rivalries. As the West rediscovers Central Asia it needs to be fully aware of the ground upon which it is walking.


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Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant

Associate Editors: Robert Windorf, Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell



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