Kyrgyzstan and the Customs Union
Kyrgyzstan could join the Customs Union as soon as 2013, President Vladimir Putin said in China. Nevertheless, Kyrgyzstan’s accession depends on its mood which tends toward unevenness and depends on the political and economic winds. The current focus is on Georgia’s reforms and Azerbaijan’s investment policy.
Most experts (except pro-government pundits) agree that Kyrgyzstan’s foreign policy is chaotic and inconsistent. For example, it has simultaneously asked for money from China, the United States, some Islamic countries, Turkey, Russia and the European Union. Although attempts at knocking on several doors at once might not appear to be the ideal approach, visits by Kyrgyz officials to China and Turkey seem to have produced impressive results. But its cooperation with the CIS countries is not so simple.
Russia has yet to provide the promised $106 million from the EurAsEC Anti-crisis Fund, and Kazakhstan hasn’t established a joint Kazakh-Kyrgyz investment fund, although it was to be opened in August 2011.
Bishkek’s recent efforts have leaned toward the Caucasus. Kyrgyz officials often go to Tbilisi for Georgia’s reform experience and at the same time are looking to Azerbaijan for investment projects. Although neither approach has borne fruit to this point, Kyrgyzstan continues to hope that Azerbaijan will fund an oil refinery, and China has promised a similar project. Kyrgyzstan doesn’t actually have oil but for some reason expects Kazakhstan to share its oil.
Kyrgyz officials claim the country wants to join the Customs Union of Russia, Kazakhstan and Belarus. Former Foreign Minister Ednan Karabayev told region.kg: “The countries of the Customs Union and the future Eurasian Union are our trade partners; they account for half of Kyrgyzstan’s trade. The Eurasian Union is the world’s largest association by area and sixth largest in terms of GDP. It has a labor market of 170 million people and an economy worth over $2.5 trillion.”
Despite these impressive words, Kyrgyzstan has not taken any practical steps toward the Customs Union. Sheradil Baktygulov, an expert on state governance at the Bishkek-based Institute for Public Policy, explained the reason at a roundtable discussion: “The republic’s politicians are not working together, and foreign policy priorities depend on personal business interests which are mostly tied to the Chinese partners. Therefore, Russia will have to develop relations with Kyrgyzstan based on political and economic realities and possibly under conditions of growing foreign policy competition.”
Independent expert Kubat Rakhimov told Nezavisimaya Gazeta that one of the drawbacks of Kyrgyzstan’s foreign policy is its reliance on tactical rather than strategic considerations. “The post of deputy prime minister for integration should have been established a year ago. Kyrgyzstan’s interests in the Customs Union should be represented by an experienced and respected politician/economist whose competence is comparable to that of a parliament speaker or a prime minister,” Rakhimov said.
U.S. Ambassador to Russia Apologizes
Michael McFaul, the U.S. Ambassador to Russia, has apologized for his blunt words regarding the U.S. airbase Manas in Kyrgyzstan. During a lecture with students at the Higher School of Economics, McFaul said Moscow and Washington had taken turns bribing Bishkek in talks on the U.S. base.
‘I regret using the word “bribe.” I should have said: “an economic aid package.” My statement was a mistake, and I regret it,’ McFaul said in Moscow.
The diplomat offered apologies for his choice of words at the Russian School of Economics, RIA Novosti reports.
On May 25, lecturing before students at the Moscow Higher School of Economics, McFaul said that in 2009 Russia “paid off Kyrgyzstan to kick the Americans out of Manas.” The ambassador added that the U.S. also offered money to Bishkek, but it was “ten times less.” The statement led to a diplomatic squabble. According to the Russian Foreign Ministry, the diplomat’s lecture went beyond diplomatic etiquette and was a deliberate distortion of some aspects of the Russian dialogue. In response, the U.S. State Department advised Moscow to get used to the ambassador’s bluntness. Russian officials replied that this was a good way for McFaul to lose credibility in Russia.
Government Approves Accelerated Privatization Plan
The Russian government has approved an accelerated privatization plan, although it is keeping a little maneuvering room in reserve: the dates and sizes of the offerings will be specified by separate directives depending on the market.
“We need to consider the current situation and the possible risks,” Dmitry Medvedev said during Thursday’s Cabinet meeting. “But in any case we need to move forward, to stay on schedule.”
The new plan is to relinquish some government interest in most large companies before 2016 rather than 2017. The government will divest its holdings in Rosneft retaining only a ‘golden share.’ It will maintain 25%, minus one share, of Russian Railways. Other assets marked for sale are RusHydro, Inter RAO, Sheremetyevo Airport, Aeroflot, Rosselkhozbank, Alrosa, as well as United Shipbuilding and United Aircraft Corporations.
Over the first three years the government expects to raise about 1 trillion rubles ($31 billion) from privatization. Privatization revenue amounted to 120 billion rubles ($3.7 billion) in 2011 and is expected to more than double this year.
Alongside some 200 smaller companies to be put on the market before September 1, the government is preparing seven major deals involving the Vanino and Murmansk Commercial Seaports, S7 Airlines and TGC-5 generating company. Russia also plans to cut its stake in RusNano to 90% through an additional share issue. In 2013, the government needs to raise 580 billion rubles, to keep with its plan.
As for the privatization of state oil producer Rosneft, no specific dates have been announced. “We are in no hurry,” First Deputy Prime Minister Igor Shuvalov said. “If a very good deal is proposed, we’ll go for it. We are not pressed for an immediate sale, unless there is a chance of getting a good price and a good investor.” A potential asset swap with a foreign investor is also being discussed.
The new regulations introduced by President Vladimir Putin’s directive could slow the government’s withdrawal from the energy sector. Most major energy companies have been classified as “strategic assets,” and thus come under presidential authority rather than the government’s.
Russia is unlikely to sell many assets soon at good prices, not with the exchange markets so low and the prospects as gloomy as they are, said Yelena Khromova, partner at BDO group in Russia.
At the same time, privatization dates could change and deals restructured, a government source admitted. “We are not going to launch this process and step aside to watch,” said Economic Development Minister Andrei Belousov. “Today’s decision means we begin preparing for privatization, looking for consultants and working out the best conditions for each deal.”
According to Igor Shuvalov, some investment consultants have proposed using convertible bonds which can be exchanged for shares in companies being privatized. Although an investor might welcome this approach due to reduced risk, the government is not supporting it at this point – not as long as it has the luxury of waiting for the exchange markets to breathe easier, analysts say.
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